Tacoda Starts Behavioral Ad Network

Tacoda Systems debuted an ad network yesterday that serves text listings tied to readers’ prior Web behavior.

The AudienceMatch Network serves text listings tied to users’ Web behavior during the previous month, as tracked on sites that use Tacoda’s behavioral-targeting software. The paid listings appear on publisher Web sites in an “Offer Inbox” ad unit. Advertisers pay when their ads are clicked.

Tacoda’s ad network initially strings together about 60 sites, including USAToday.com, Media General and About.com. Tacoda plans to expand its publisher network to 1,000 sites in two months. Nearly 100 advertisers are participating in the initial phase. Tacoda sells AudienceMatch ads through an online self-service option and a direct sales force.

Tacoda will compete with pay-per-click ad networks including Google’s AdSense and FastClick. Unlike paid listings providers like AdSense, Tacoda’s network is banking on prior Web behavior to deliver better leads than contextual placements such as AdSense, which serves text listings based on a Web page’s content.

“Today, the only option for publishers and advertisers is 100 percent contextual,” said Dave Morgan, Tacoda’s CEO. “I’m not saying it should be 100 percent audience-based. I think there should be a balance.”

Like other paid listings providers, Tacoda operates an auction for advertisers to bid on leads. Instead of bidding on keywords or categories, advertisers choose from a menu of audiences, such as auto buyers, homebuyers and sports fans. AudienceMatch has a 25-cent minimum bid.

Advertisers pay incrementally more for each added audience attribute. For example, an offer targeted to an in-market car buyer would cost less than an offer to a female in-market car buyer, which would cost less than a female in-market car buyer in a specific geographic region.

Publishers serving AudienceMatch ads that are clicked share in the revenue generated. In addition, publishers who provide targeting data also get a cut. Morgan said some AudienceMatch publishers are participating only through providing audience data.

“I think it’s the beginning of what will be a data market,” he said.

Tacoda has no plans to expand AudienceMatch to brand-oriented ads, Morgan said, since doing so would put it in conflict with Web publishers’ sales forces.

For a publisher like USAToday.com, AudienceMatch ads are another outlet to generate more money from extra ad inventory that goes unsold by their direct sales force, said Adriaan Bouten, vice president of technology and business development at USAToday.com. The news publisher already shows paid listings from IndustryBrains and Kanoodle. He said AudienceMatch listings could outperform contextual listings.

“That’s all theory right now,” Bouten said. “The logic makes sense. We’re just getting into this.”

Morgan estimates that 60 percent of the inventory on ad-supported Web sites is turned over to third-party ad networks, and online publishers are likely to use various tools to wring revenue from that space.

“It’s all going to be about who can deliver the most money per person per page,” he said.

Contextual listings, while still a small market, are expected to expand greatly. U.S. Bancorp Piper Jaffray last November forecast the contextual listings market to climb from $300 million in 2004 to $1.4 billion in 2008.

Google has aided the market’s growth with aggressive expansion of its AdSense for Content program, which displays its text listings on thousands of Web sites. Its success has spawned competitors such as rival Overture’s ContentMatch, Kanoodle’s ContextTarget and startups like ContextWeb and Quigo.

“A year and a half ago it was a great way to get rid of remnant inventory,” said Gary Stein, an analyst with Jupiter Research. “Now, it’s pretty quickly become core to your advertising offering.”

Tacoda has taken steps to head off privacy concerns. It does not compile data or tie it to personal information, targeting ads instead based on information gleaned from cookies deposited on users’ computers by participating publishers. Internet users can opt out of receiving AudienceMatch ads. Last week, Tacoda hired Mark Pinney to serve dual roles as chief financial officer and chief privacy officer.

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