Target Acquired: Focusing on Ads

So there I was, standing in a mockup of a newspaper printing plant in Durham, NH, looking at some cutting edge technology: an inserter. An inserter is a machine that literally inserts sections into an overall newspaper. With enough pockets (spots that hold sections) and the control to start and stop these on the fly, you can create a newspaper package that is different for certain geographic regions. The goal was to get to the "carrier-level" in which each carrier had a different package. This enables a publication to deliver targeted content to a specific neighborhood, thereby opening up some levels of advertising to new markets.

That was back in 1999.

A couple of years later, in the trough of the tech recession, I attended a discussion about online advertising. A woman stood up and asked a speaker, who worked for a major advertising firm that bought millions of dollars in banners and other interactive ads, whether he would pay a premium for a targeted, captive audience. He laughed and said he wondered why he would when he could get millions of impressions from a place like Yahoo for almost no money. His assumption was that whatever audience he wanted would be included in that larger group.

At the time he was right.

So now look at this quote from an InformationWeek story about Google's patents:

In a broader sense, Arnold [Stephen E. Arnold, who has written a book on his one-year odyssey studying the search firm] believes Google is building a “patent fence around search” technology as the firm moves to codify its unique competitive advantage. An ultimate goal of the firm is to deliver completely individualized ads to users.

The problem with this model before was that the value proposition just wasn't there. Yes, you could target individuals, and maybe that had value, but how much? And how expensive would it be to offer that kind of functionality? Would advertisers be willing to pay the extra money for it? Would the targeting result in more effective ads?

Would it be enough to justify investing a few million dollars in an inserter?