April 15, 2010, 11:55 AM

A start-up`s new take on retargeting: focus on the top customers

Among the hottest topics in online display advertising is retargeting, the practice of showing consumers who have demonstrated interest in a particular product or brand relevant ads as they move around the web. A new marketing company called TellApart says it can improve retargeting results by identifying an online retailer's best customers, then investing heavily in targeting them with web display ads.

Among the hottest topics in online display advertising is retargeting, the practice of showing consumers who have demonstrated interest in a particular product or brand relevant ads as they move around the web. A new marketing company called TellApart says it can improve retargeting results by identifying an online retailer's best customers, then investing heavily in targeting them with web display ads.

Hayneedle Inc., which operates 220 highly focused e-commerce sites, such as BabySwings.com and RabbitCageSource.com, has been testing the TellApart service for several months. Return on ad spend is three to five times what it's been with other online display ad programs, says Ash ElDifrawi, chief marketing officer.

ElDifrawi, who worked with TellApart CEO Josh McFarland when both were at Google Inc. a few years back, says McFarland has built a better mousetrap. "He clearly has figured out a much better way to identify high-potential, high-value customers and to target them effectively, to the point where he's willing to make the bet of buying the ad inventory because he believes his model will pay back for him," ElDifrawi says.

TellApart only gets paid when a consumer clicks on an ad and makes a purchase on the retailer's site. McFarland says that sets it apart from most of the rapidly growing array of retargeting services that charge either by the click, impression or who collect a commission on view-throughs, that is, whenever someone who has seen the ad makes a purchase from the advertiser within an agreed time period. TellApart takes a commission ranging from 10% to 30% of a sale, with the percentage likely to increase on higher-margin goods, McFarland says.

The heart of TellApart's approach is determining who are a retailer's best customers, then bidding heavily on ads when those customers show up on web sites.

Some consumers are obviously good customers, McFarland says, because they buy frequently and spend a lot. But sometimes the data reveal surprising trends. For instance TellApart is finding that consumers who use Internet Explorer as a browser are more likely to buy in a given web session.

McFarland doesn't know why, but TellApart feeds data like that into its formula for scoring the value of a customer. It also licenses data from companies that maintain extensive databases of consumer information, so that TellApart can add to what a retailer might know about a consumer such information such as age, gender, marital status and presence of children in the home.

Once TellApart identifies a retailer's best customers, it can add tracking cookies to their browsers to target them with display ads. "The cookie list is the new mailing list," McFarland says.

McFarland believes there is a lot more TellApart can do with the consumer data it is accumulating. Ad retargeting is just the first application, and TellApart has been testing it since the fall with online retailers Hayneedle (formerly NetShops), No. 83 in the Internet Retailer Top 500 Guide, eBags.com (No. 93) and Diapers.com (No. 140). TellApart now is testing a second application that would allow a retailer to show ads to consumers who did not buy from targeted ads a few months back, but, for instance, might be interested in a new product line a retailer is launching or a sale. "Our platform will allow you to go back in and reach out to those same customers on a display ad basis," McFarland says. "They're still viable and addressable."

More services will come, McFarland says. "Once you've got the data platform and the data coalesced, there are all sorts of great applications that you can create on top of that," he says.

TellApart is getting started with $4.75 million in funding from venture capital firm Greylock Partners and such Internet luminaries as LinkedIn founder and chairman Reid Hoffman, Twitter chief operating officer Dick Costolo, and Jeff Jordan, CEO of online restaurant reservation service OpenTable. McFarland developed the business plan for TellApart while working at Greylock along with Mark Ayzenshtat, another former Google executive who is co-founder and chief technology officer of TellApart.

McFarland recognizes that TellApart is entering a field crowded with retargeting technology companies. And that includes Google, which recently announced its own retargeting service that lets advertisers present ads on sites in Google's AdSense network to consumers who have demonstrated certain behaviors.

What differentiates TellApart, McFarland says, is that it targets an advertiser's best customers, which lets it bid more on advertising inventory as those consumers move around the web. That, he says, will drive more sales volume to advertisers and higher return on ad spend.

"Retargeting makes a lot of sense, but if you're just doing it willy-nilly you're going to find it's a very expensive proposition because you're showing lots of ads to people who are not or no longer in the market for what you're trying to sell," McFarland says. "Customer quality is super-important. That's the primary factor we layer back into the customer data: Who are those folks we want to get those retargeted ads in front of?"

And the cost-per-acquisition pricing model reduces advertiser risk, he says. "If it doesn't work for you, you won't have paid anything for it," McFarland says, "so you can believe we'll work very hard to see that everything does work." ElDifrawi of Hayneedle agrees that TellApart's approach gives it a lot of skin in the advertiser's game. "If you're working on a cost-per-acquisition model," he says, "it means you believe in your model."

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