How Does Targeted Display Advertising Work?

August 22, 2019

Collective Measures

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How Does Targeted Display Advertising Work?

Have you ever noticed how ads on the internet seem to be personalized towards you? Or how certain ads seem to “follow” you around the internet after you visit a company’s website? Unsurprisingly, this is all by design. Enter targeted display advertising – an effort by marketers to efficiently spend each dollar of advertising investment on the most qualified users. But how does it work?

The Magic Of Cookies In Display Advertising

Traditional display advertising has historically operated using cookies, which are essentially strings of code stored on the back end of a user’s browser. The purpose? Cookies are used for gathering information or presenting customized data to a user. Simply put, cookies can help your browser “remember” you for easier website navigation and access when you return to a previously visited website. 

For example, cookies can “remember”:

  • A user’s website preference, like language selection or location
  • Products a user has added to a shopping cart when they leave a website and return to purchase later

Advertisers can use cookies to better understand browsing behavior and target users based on online activity and preferences. How? Advertisers can remarket to customers who showed interest in a certain webpage or serve targeted ads to users who fall within various audience categories as aggregated by a third-party data provider.

Website Retargeting Vs. Third-Party Data Providers

Retargeting works by implementing a pixel on an advertiser’s site, and when that pixel “fires” (meaning a line of JavaScript code runs), a unique string of text is added both to the browser of the user who viewed the page and to a running list of all users who visited that page. This creates an “Audience Pool” that can be used to programmatically serve ads and potentially “follow” users around the internet.

Cookies can also be used to target users based on their internet browsing activity. For example, in exchange for allowing users to browse their site content for free, websites will often contract with third-party data providers to allow the data provider’s pixel to fire on their site and collect anonymized information about the site’s users. For example, a third-party provider could pay to pixel 20 automotive-themed sites and then sell an audience of “car enthusiasts” to other advertisers. In this way, the websites get compensated for their content and advertisers are allowed to target users with specific interests as they travel the web.

What Happens When Cookies Don’t Work?

Cookies are not always a perfect solution. Due to technological limitations (cookies tend not to work in certain mobile environments) and increased consumer privacy efforts (like Apple’s ITP2), the usefulness of cookies as a targeted advertising mechanism is beginning to decline.

Working Around Cookie Limitations

To work around the limitations of cookies, some companies have started offering “cross-device” mapping services. This involves extending targeting beyond cookies and into probabilistic models that consider attributes like device IDs, device locations, and frequency of proximity to other devices. Probabilistic modeling works by grouping together devices that are near each other often, indicating the same person is using them. Since they are “probably” the same user, if a mobile device is consistently near a desktop computer day after day, cross-device vendors will “map” those devices together and treat them as the same user.

Cross-device vendors can also use more exact/deterministic models to map users through actual login information (such as a Facebook login) to determine that multiple devices truly belong to the same user (although this information is typically much more difficult to come by and often heavily guarded).

Final Takeaways: What You Need To Know About Targeted Display Advertising

Cookies are the fundamental way targeted display advertising works. Cookies can be used to either build first-party audiences of users who visited a website or to build purchasable third-party audiences of users grouped together by some characteristic or browsing behavior.

With recent consumer privacy concerns, ad tech companies have already begun solving cookie-specific concerns and limitations. How? Cross-device mapping services continue to reach the users most likely to fall in a target market regardless of the presence of a current cookie or not.

As a marketer, it is important to ensure programmatic platforms are utilizing all of the latest cookie mapping and conversion counting techniques and technologies, ensuring that the performance of advertising investment is able to be targeted and measured as accurately as possible.

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