Web analytics: IP targeting: hit or miss?

kfog server, the IP address identifies my machine as being UK based, and
this allows it to send back UK-specific ads, so I receive a message from
Sky Sports or a UK car insurer."

This is a good example of how the relatively new technique of IP
targeting works. When it works well it is extremely effective, and this
is causing many online advertisers to look into it more closely.
However, as they do so, they are finding that there are many challenges
to effective IP targeting. In the next year, the online marketers who
can overcome those challenges may find they have a powerful new tool at
their disposal.

The principle of IP targeting is relatively straightforward. Internet
service providers assign IP addresses to each individual computer and,
in so doing, provide that computer with an address on the internet. Most
of the key search engines then use these IP addresses to map computers
to physical locations. This makes it possible for websites to target
content and advertising appropriately, depending on the geographical
location of their visitors. IP targeting is often called geo-targeting
and is also a means of routing internet traffic appropriately.

Dave King, chief executive of online marketing agency Altogether
Digital, offers this explanation of how it works: "There is a number of
vendors who can license out a database of IP addresses, such as Maxmind
and IP2Location. The database will typically contain entries for IP
ranges and varying degrees of geographic information. The cheapest just
have country data, whereas more expensive ones have more granular
information such as city and latitude/longitude. Organisations can use
this database whenever someone requests a web page, either to deliver
appropriate content or to redirect users to that content."

This IP data can take users to the most appropriate website, so if UK
users type in google.com, they get redirected to google.co.uk. Also, it
can be used to recommend a more appropriate source of information. For
example, amazon.com will suggest that you may want to visit the
amazon.co.uk site instead. It can further be used to restrict access,
so, for example, if you have an e-commerce site that is only available
to Germany, it can be hidden from users in all other countries. Finally,
it can also be used to provide sensible default values, such as
automatically choosing the appropriate currency based on their
location.

Siddhartha Khemka, director of publisher solutions at 24/7 Real Media,
offers two practical examples of how IP targeting is being used:
"E-commerce companies can compare an online user's geographic location
and connection data to existing account information to determine the
likelihood of fraudulent activity, blocking the criminals and smoothing
the way for authenticated customers. Online banks can use it to
authenticate their customers with maximum accuracy and avoid serious
legal consequences for failures."

However, IP targeting also has some potentially ground-breaking
marketing applications. "Targeting is an essential element of any
marketing campaign," says Mark Patron, chief executive at online
behavioural marketing and analytics company RedEye. "IP targeting helps
web marketers and search marketers gain a greater understanding of the
geography of website visitors and so serve up more appropriate,
geographically based messages."

He continues: "IP targeting also allows marketers to select their
geographical pay-per-click categories more effectively, and it enables
some reasonably useful web analytics. For example, regional advertisers
can save money by only sponsoring keywords with Google in England."

So, a low-budget airline may only want to target people in the North of
England because that is the sole site of its operations. If it only
flies out of Manchester Airport, it has no interest in delivering ads to
people in Ecuador. So, with IP targeting it can, in theory, know which
computer is in Ecuador and which is in the North of England, and so
direct its adspend more effectively.

City-level targeting

Pete Dineley, vice-president, EMEA, at online marketing agency Front
Porch, says: "Advertising to geographical locations using IP targeting
typically brings a lift of approximately 30 per cent on click-through
rates, and can bring even more than that. It's now possible to get down
to city-level targeting and this allows publishers and advertisers to
direct the right content to the right user at the right time."

Sadly, it is rarely as simple as that. IP targeting is beset by
problems. And some, such as online marketing agency Wunderloop, question
whether it is ethical. A spokesperson commented: "Wunderloop does not
use IP targeting to track consumers. The idea of tracking people and
being able to identify them is not recommended in the European codes of
practice and, because Wunderloop is a German-based company, it follows
the rules as suggested within the European data-protection
framework."

The view is not widely shared, however, and most problems with IP
targeting are practical as opposed to ethical. By far the greatest
problem is with accuracy of data. Jay Daley, director of IT at Nominet,
explains: "IP addresses are allocated by regional internet registries
(RIR). When an ISP gets a new allocation, all the IP addresses in that
block are registered with the RIR at the ISP's address. Because they use
the IP addresses by sub-allocating them into blocks, the ISP is meant to
register these blocks with the RIR. Unfortunately, not all ISPs do this
and so the IP addresses still show as being used at the ISP postal
address when they may be with a customer on the other side of the
country."

Furthermore, the individual or company registered as the user of that
IPO address may not be the person who actually uses it. For example, all
NHS traffic might appear to come from the same city, and some global
companies appear to have all their employees in the same country. Or, a
household of five people of mixed sex and age ranges will all be using
an IP address that is assigned to a male aged 35-45.

RedEye has carried out in-depth research into IP tracking and found some
major inaccuracies. It found that using data on IP addresses leads to
over-reporting of visitor figures by more than 600 per cent after 28
days. It found that there is only a 14 per cent chance that a path
reported using the IP-address approach actually happened. Perhaps most
crucially, it found that across a whole month, only 22 per cent of
visitors can be tracked completely if you use the IP-address
approach.

For many experts in this area, the key is to be realistic about what
level of accuracy you can achieve with IP targeting. While targeting by
country is fairly accurate, claims by some suppliers to be able to
deliver to postal district are widely viewed with scepticism. Some, such
as Mike Teasdale, planning director at Harvest Digital, even question
the importance of targeting.

He says: "IP targeting is unlikely to ever be 100 per cent accurate. At
Harvest Digital, we have had better results from adding a targeting
criterion to the messaging, say 'Calling students in Blackpool', than we
have from relying on targeting alone. It might be heresy but, for
products with a fairly broad appeal such as flowers or mobile phones
from Tesco, we have found it more effective to dispense with targeting
altogether and simply to buy ad distribution as broadly and cheaply as
possible."

This is not to say that IP targeting has no use. Jill Orr, managing
director, CNET Networks UK, says: "IP targeting provides a great
opportunity for publishers to deliver UK targeted advertising solutions
for marketers and more relevant advertising messaging to users, wherever
they come from. The main challenge with IP targeting is wastage. For the
industry, understanding and solving this wastage will be a critical
issue in 2008."

The first step must be to establish realistic expectations of what IP
targeting can achieve. As Chris Russell-Smith, marketing director at
affiliate marketing company dgm, puts it: "Geographical targeting
obviously offers better ROI by reducing unnecessary wastage."

Furthermore, by gaining a clear understanding of ISP structure,
household dynamics and internet usage, a marketer can get the most out
of IP targeting. Increasingly also, companies are beginning to combine
IP targeting with other data to increase its reliability and
usefulness.

For example, companies within the Microsoft network can access Passport
information, which provides a user's age, sex and location. Search
companies can combine IP data with information such as a search history
to narrow down a user's location. Websites such as Upmystreet.com
specifically serve data to customers based on their postcodes.

Dineley believes that combining IP targeting campaigns with behavioural
interest is the way to get the greatest return. He says: "Simply adding
geographical targeting alone will not maximise value for the impression.
Integrating behavioural data with geo-targeting can bring a much higher
return than geo-targeting alone."

Dineley is confident that, over time, IP targeting will become more
accurate. He says: "It will evolve towards neighbourhood-level accuracy.
Advertisers will want to reach customers within a very close proximity
to their businesses. For example, a farmers market may want to advertise
to people within its catchment area. Our behavioural targeting solution
enables accuracy that surpasses existing IP targeting."

Russell-Smith agrees that it will become more accurate but believes that
the advances will come from the ISPs. He says: "In the future,
IP-targeted activity will become more accurate as the ISPs become more
sophisticated in their ability to capture information at source and
categorise it effectively. This will in turn allow greater integration
with more established socio-demographic resources. In the future, it
will be possible to target users based on media consumption and shopping
habits as well as where they live."

Prognosis

Patron is not so optimistic. He believes that the quality of
geographical information from IP addresses is likely to become worse,
and he points to the importance of deduping cookie and registration
data. He says: "As web marketing gets increasingly competitive, getting
targeting right will become a key area in terms of winning market share.
Consequently, relying on IP targeting alone will not be the way
forward."

So, the future of IP targeting seems uncertain. Its use seems surrounded
by doubts about its effectiveness, to say nothing of its ethics.
However, as online marketing becomes ever more competitive, companies
will need to use every tool at their disposal. IP targeting may not be
perfect, but it has its uses, and, looking ahead, we can expect to see
online marketers trying to get as much as they can from it.

If nothing else, IP targeting has an important role to play in reducing
the exposure of internet users to geographically irrelevant ads.
Already, the heaviest internet users are being exposed to a high
frequency of ads, and this will increasingly reduce the effectiveness of
those ads. Eliminating their exposure to those ads that are only
relevant to people in a different country will go some way to focusing
their attention on those ads that are actually relevant to them.

Ivins, who has witnessed this at first hand through his use of the radio
station in San Francisco, concludes, saying: "At a minimum, advertisers
and agencies must target their ads by country. It simply wastes
impressions to send an ad to someone sitting in the UK if that product
is aimed solely at the US market."

TOP TIPS FOR IP TARGETING

- You need to be realistic about the accuracy of IP targeting. While it
can help identify countries, it is very rarely useful for targeting by
city or postcode.

- Be sceptical about claims by suppliers of IP targeting data to be able
to target by anything more specific than country. A growing number of
companies are claiming to be able to offer this, but it is rare that
they can do so.

- You should always consider who actually uses the internet connection,
rather than who is registered at that IP address. For example, in a
family, everyone might use the internet connection, while the IP address
is registered to the bill payer.

- Companies may have all of their IP addresses registered at head
office, while their staff are in fact widely dispersed.

- Similarly, the ISP may not register the locations of their customers
as accurately as they should. For example, AOL used to route all its
global traffic through a gateway in Virginia, so all AOL users appeared
to come from there.

- Advertisers seeking to use IP targeting should look to combine
campaigns with behavioural interest for maximum return. Simply adding
geographical targeting alone will not maximise value for the
impression.

- Where possible, aim to use IP targeting to make online marketing more
relevant to prospects. By eliminating geographically irrelevant ads, you
should be able to enhance the effectiveness of your geographically
relevant ads.