Understanding Online Targeted Advertising

Imagine for a moment you are looking for some new shoes. After visiting a few online stores, you find the perfect pair. You decide to sleep on it and jump over to an unrelated site to check the hockey scores from last night. To your surprise, you notice a banner ad for the very pair of shoes you were looking at. “That’s odd,” you say, “I was just looking at those.” You shrug it off and decide to watch a video about cats being cute. “What’s this?” Nestled in with the other ads, it’s the ad for your shoes again! This is not your very own version of “The Truman Show,” this is online targeted advertising. It is also known as interest-based advertising.

While people think this is a new phenomenon, targeted advertising has been with us since the late 90s. Advertisers worked very much like they had with TV. If you wanted to reach women between the ages of 20 – 30 years old, you would place your ad on a website that catered to their interests. It has only been recently that advertising has got a lot more intelligent. By using browsing habits mined from users anonymously to make advertising more personalized, targeted ads began following people across the Web.


Today, this type of marketing is everywhere and people aren’t exactly sure what to think about it. When surveyed, a majority of people didn’t really like the idea that their browsing data can be tracked. In some circles, people believe it is akin to an invasion of privacy. But how do advertisers collect this information and more importantly, what do they actually do with it?

Despite what some movies depict, there is no smoke filled room with people watching you surf. It’s all done with algorithms and you have the option to block if you want to.

How Online Targeted Advertising is Done

The two main ways advertisers track, is by cookies or your IP address. Cookies are small text files that are downloaded by your browser when you visit some websites. Cookies generally collect and store information that is associated with your web browser, including information such as website preferences, login information, or a user ID. They are there for your convenience, by loading your previously entered information. Advertisers also use this feature to track what page you visit on their site as well as how long you spend on it etc. The other way, is using the IP address used by your internet connection. Essentially, it’s like a building address but for your computer. For example, you may find that targeted ads seem to be much different while using the Wi-Fi at work then when you are on Wi-Fi at home. Advertisers using this technique can see where you go but if the connection is shared with people of varying demographics, you might find the ads don’t always line up with your interests.


Consumer Benefits:  This makes the ads you see online actually interesting to you instead of just noise getting in the way of content you are trying to consume.

Advertiser Benefits:  It allows them the opportunity to advertise to a captive audience. This helps “cut the fat” and spend their media purchasing budget more wisely. By only advertising to those who have a leaning to the product or service they are offering, they can be more effective and more profitable.


The Network Advertising Initiative conducted a study in 2009 measuring the pricing and effectiveness of targeted advertising. Here are their findings:

  • Targeted advertising yields an average of 2.7 times as much revenue per ad over non-targeted “run of network” advertising.
  • Targeted advertising is twice as effective at converting users who click on the ads into buyers.
  • The marginal cost of a brand-related search resulting from traditional ads is $15.65 per search, but is only $1.69 per search from a targeted campaign.
  • The marginal cost of a click is 72 cents from traditional ads, but only 16 cents from a targeted campaign.

As the advertiser, you get the opportunity to speak to a greater number of people interested in your message. As the consumer, you get the opportunity to see ads you actually want to know more about. All in all, targeted marketing can be a huge benefit to both the advertiser and the consumer when it’s done the right way.