Why Targeting Increases the Value of Ads

I’ve written previously that “Targeting information is the new scarcity in advertising.” The Information has a perfect example of exactly that:

Mobile app developers that rely on highly targeted ad campaigns to bring in new business are facing rising rates and inventory shortages as they compete to reach a small group of desirable, free-spending customers.

Companies including SGN, Groupon and Big Fish Games all say the supply of desirable mobile advertising options can run too thin. The squeeze is driving up prices, and is one of the reasons that Facebook and Twitter are each exploring the creation of advertising networks that could target people outside of the social networks themselves.

New advertising options alone, though, may not solve the problem for mobile app developers, who industry executives say are the biggest buyers of mobile ads. That’s because they’re on the hunt for something very specific: A customer who will either download an app, or spend money in an app that she might already have.
When app developers figure out who she is and how to target her, they will spend heavily on ads—though only to a point. If prices get too high, or if there simply aren’t enough people in the target market and the advertiser is forced to broaden the focus, the cost-effectiveness of the ad campaign can deteriorate rapidly.

“If you’re looking at data-targeted or behavioral-targeted advertising, when you start to get very specific about the audience you are trying to reach it does reduce the supply significantly, the more granular you get,” says Patrick Dolan, executive vice president of the Interactive Advertising Bureau. “A lot of times when you’re looking for a very specific audience its very hard to scale because that audience is not as big.”

Dumb ads that rely on nothing more than page views are worth basically nothing; after all, there is an infinite supply. But what makes Facebook so compelling to an advertiser is that they can consistently deliver ad spots that target very specific niches that have a high conversion rate. This is rare, and it’s expensive, and it’s one of the big reasons that Facebook’s financial results have been killing it lately.

It’s also a big advantage that Facebook has over Google; Google can serve you an ad when you’re already looking for something, but Facebook can serve you an ad for something you didn’t even realize you wanted.