The Accuracy Gap: IP Addresses and the Challenge of Effective Ad Targeting

Marketers must ensure they advertise to the right audience to convey their message with greater success. To increase the success of their campaign, they must also ensure that they use the right tools, especially in today’s digital landscape, which requires more in-depth analysis. Gone are the days when the measurement of success relies on the number of live viewers on television; marketing success today also relies on online viewers and interaction.

One of the modern tools used by advertisers in effective targeting is the IP address. Advertisers use this data because it can identify devices connecting online and pinpoint their location.

Accuracy Discrepancy

While an online user’s IP address indicates their location, it does not necessarily mean their EXACT location. Unfortunately, this puts advertisers at a disadvantage since ad location ensures they can target the right audience and limit excess spending as much as possible.

Match rates, according to Ad Exchanger, are very low:

“IP-to-email matches are accurate about 16% of the time on average, while IP-to-postal matches are accurate only 13% of the time.”

Those numbers are troubling since the data indicate less than 20% accuracy in targeting the right audience based on their IP addresses.

These numbers came from Truthset’s analysis report of “...nearly one billion IP records from six major data providers against an accurate database of IP address to household assignments provided by two leading ISPs and one leading Multichannel Video Programming Distributor (MVPD).”

Challenges Ahead

Unfortunately, the problem of inaccurate IP addresses compared to their actual location is just the tip of the iceberg. IP addresses, especially in residential areas, are often dynamic. Customers may have a different IP address whenever they connect to their ISP. This is a common practice with most ISPs to save costs. An IP address may be associated with an accurate location, but the data is never permanent.

Another challenge faced by advertisers using IP addresses is the use of VPN, or Virtual Private Network. Through VPN, actual IP addresses are encrypted by tunneling their connection through a different IP address provided by the VPN company. This is often used for security purposes and even bypasses geolocation restrictions.

There are also hopes for improved accuracy through the use of IPv6 instead of the current IPv4. Unfortunately, adoption of IPv6 is slow, which also affects its accuracy in pointing users' locations.

Understanding The Limits of IP Addresses in Advertising

There is an inherent challenge in using IP addresses as bases for advertising. Unfortunately, technological advancements that could fix this problem may not be coming soon.

However, advertisers should place importance on what an IP address can actually do instead of expecting an incredibly accurate location. According to an analysis by Dedirock, an IP address can be highly accurate (95-99%) in identifying a user's country location. Data accuracy drops (50-70%) for city-level accuracy and is nearly impossible for street-level accuracy.

While IP addresses do not provide an accurate, street-level location of online users, they still have some use, especially for city-wide targeting. Marketers must work with this limitation to improve their advertising practices.