Turning the Tables with Targeted Ad Insertion

When online advertising revenues slowed to a trickling pace in the fourth quarter of 2000, bearish financial institution Merrill Lynch took notice; reducing its estimates for the online advertising market for 2001 down to $8 billion from earlier expectations of $9 billion. Such gloomy predictions don't bode well for an industry practically clawing for positive headlines and pained by the ongoing sting of market backlash.

The streaming media space, though, may see that prediction in a different light. First, any way you slice it, $8 billion is $8 billion, and not an insignificant chunk of change — if you can grab a significant share of it. Plus, the killer app that has so eluded streaming business models for so long has finally arrived: targeted ad insertion.

Targeted advertisements can be inserted into audio and video, for live streams or on-demand. Currently, many on-demand ad insertions are being used as "gateway" or "in-message" ads — 5- to 30-second spots that appear before or after a particular stream. But the real challenge (and significant revenue) comes in the ability of webcasters to insert targeted ads during live streams, so two people in the same room, listening to the same stream, actually receive two different ads.

Most people in the industry agree that live, targeted ad insertions for streaming video are still a long way off, so the race, right now, is in Internet radio.

For terrestrial radio stations, targeted ad insertions present a solution that seems almost perfect in its simplicity: re-broadcast your radio programming online, and replace local ads with ads targeted at a singular demographic that commands mind-blowing CPMs.

But the simplicity is hardly perfect when one adds up the many variables involved: the cost of streaming, the competition (online radio stations number in the tens of thousands), the limited audience, the complexity of the technology to deliver "seamless" ad replacements, and the momentous effort necessary to move stodgy, 100-year-old advertising agencies into believing that online advertising is actually a good buy — particularly under these current market conditions.

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