Big data leads to a big revival for display ads

It looks like rumors of display advertising’s death were greatly exaggerated.

Nearly all the tech industry’s biggest players — AOL (s AOL), Facebook, Google (s GOOG), Microsoft (s MSFT) and Yahoo (s YHOO)– are expected to report growth in their display ad businesses for 2011, according to a report released Tuesday from research outfit eMarketer. And these display ad businesses aren’t just legacy cash cows for older tech firms; Facebook is expected to nudge out Yahoo to become the biggest seller of display ads this year. By 2012, Facebook will likely account for one dollar of every five spent on display ads, according to eMarketer’s research.

Why are display and banner ads– long criticized for being inaccurate, annoying, and easily ignored— currently on the upswing? It could be because of new technologies that employ big data processing and real-time analytics capabilities to make display ads more efficient– and more lucrative– than they’ve ever been.

Take TellApart. Founded in 2009 by ex-Googlers Josh McFarland and Mark Ayzenshtat, the Burlingame, Calif.-based startup catalogs behavioral information of online shoppers so that companies make their display and banner ads more relevant. This practice, known as display retargeting, enables e-commerce companies to tailor their promotional approaches in the same way that brick-and-mortar shop owners have done for years, TellApart CEO Josh McFarland says.

“If you think about commerce in the real world, shop owners have a certain amount of information at their fingertips. They can see shoppers’ taste. If a shopper is carrying shopping bags, for example, that’s one of the strongest signals that they could be a good buyer for you that day. All that affects the behavior of a storekeeper in the offline world,” McFarland told me in an interview last week. TellApart purportedly gives e-commerce websites the tools to examine their shoppers’ behavior in the same way– only online.

Doubleclick and other first-generation display ad retargeting companies catalog demographic information such as age, gender, location, and top-level data such as what websites people visit. TellApart goes deeper by cataloging actual customer behavior, such as what specific products web users have looked at and purchased, and using that information to help target relevant ads to those customers in real time. If a person just viewed a product page for tennis rackets, for example, TellApart may encourage a client to show her a display ad for tennis balls. In short, TellApart helps companies target people based on their actual behavior, rather than on a demographically-determined guess of what they’re interested in.

From an engineering perspective, what TellApart does is no easy feat,  CTO Mark Ayzenshtat told me. “The data is there; it’s just really noisy.” But separating the signal from the noise is apparently big business. On average, display ads generated using TellApart’s technology have a 7.5-percent user click-through rate and a 4.5-percent conversion rate, McFarland said. TellApart is so confident in its ability to increase display ad effectiveness that it only charges companies a commission on the sales its technology has directly helped generate.

The strategy is paying off. TellApart is profitable, and last week closed on a $13.75 million Series B funding from Bain Capital and Greylock to help fuel its aggressive growth plans. In a way, the funding represents “the rebirth of the display ad space” for Bain and Greylock, McFarland said. Indeed; the last time the two firms invested in an early stage company together was 14 years ago — with a little company called Doubleclick.

TellApart isn’t the only hot ticket in the newly reinvigorated display retargeting space. Google paid a reported $400 million to buy New York City-based display ad optimization company AdMeld last week. The AdMeld deal has supposedly brought increased attention to competitors such as Pubmatic and Rubicon Project. And e-commerce giant Amazon (s AMZN) is said to be looking into incorporating more display ads into its own business strategy.

Display ads, which have been around for nearly 15 years, are just about as old as the web itself. But if recent investments in the space are any indication, a lot of people are betting that they still have a lot more room to grow.