PARIS A boom in online display advertising like banners and videos has touched off a gold rush for tech start-ups seeking ever finer ways to target marketing to web surfers, turning the best of them into unexpected rivals and prey for Google Inc (GOOG.O) and major ad agencies like WPP Plc (WPP.L).
Most of these start-ups gather data with so-called cookies, small pieces of text that Web browsers drop onto users' machines to track their movements from site to site.
But others are taking a different tack, identifying web surfers by the devices they use, their browsers, or behavior on social networks, in part to avoid increasing regulatory scrutiny of tracking via cookies.
With Google having already cornered the $30 billion market for ads that appear as links in response to Internet searches, display ads are emerging as the new battleground as big brands shift their marketing spending to the Internet and away from old media like newspapers.
"Unlike search, which is completely dominated by Google, display is pretty fragmented and is going through a lot of changes," said Ian Maude, an analyst at Enders Analysis.
"It's definitely creating an opportunity for smaller players to enter the market but we're also seeing the big players like Google moving pretty aggressively too."
Display ads are growing faster than search, with revenues set to double from 2010 to 2013 to reach more than $35 billion a year, according to market research firm Zenith Optimedia.
Facebook is taking a big chunk of the market by capitalizing on the extensive data it holds about its members.
One emerging player in display ad targeting is Paris-based Criteo, a start-up that has the backing of top venture capital firms like Index Ventures and Bessemer Venture Partners.
Criteo's technology focuses on "re-targeting" - catching users who have visited a shopping website without buying anything, and then showing them ads for similar items on other sites in order to tempt them back.
The approach has proven popular among online retailers like eBay (EBAY.O), Expedia (EXPE.O), Sears and Target (TGT.N) which have become Criteo clients and put the start-up on track to earn $200 million this year after only three years of existence.
"We're trying to duplicate what Google did with search ads in display," Criteo's Gregory Gazagne told the Reuters Global Media Summit in Paris.
"Like Google's search ads, we only get paid if people click on the ad. Our tools are good enough to predict whether they will, so we can afford to do this."
Another start-up, Irvine, California-based BlueCava, is pushing a so-called digital fingerprinting approach, which can uniquely identify any Internet-connected device on the planet -- computers, mobile phones, set-top boxes and gaming consoles - with more than 99 percent accuracy.
It then uses the data to build profiles of the people who use the devices and sells the information to big hotel groups, airlines and e-commerce stores seeking to drive online sales.
David Norris, founder and CEO of BlueCava, said display ad targeting still had much room to improve.
"It's kind of like turning on the radio in the morning as you drive to work," he said. "You just hear commercial after commercial after commercial, but they're completely random, because they have no idea who you are."
He said display ads were currently at about 5 out of 100 on a scale of targeted accuracy, with search at 60 of 100. "We're at the very beginning of a process that as you go forward will basically be better and better for the consumers," he said.
The innovation by such start-ups has not gone unnoticed by the heavy hitters of the ad world, which are on the prowl to snap up those with the best technology.
Google has been on an acquisition spree with the aim of building a stronghold in display akin to what it has in search.
In June it bought a start-up called AdMeld, which helps websites earn more money from display ad space, after buying Invite Media, a trading platform for display ads.
Ad agencies are also watching closely to make sure these new ways of targeting and placing display ads online do not make them less relevant to their big clients.
Both WPP, the world's biggest ad agency group, and number three Publicis (PUBP.PA) have made dozens of acquisitions in the digital realm in recent years.
WPP CEO Martin Sorrell described how his agency had bought a small company a few years ago and built it up into Xaxis, an audience-buying platform to help its big clients better target their ads online.
"We have data on some 500 million people online, unidentified by name but with their demographics," he said, "Data is vitally important and analyzing it even more so."
(Additional reporting by Kate Holton and Gwenaelle Barzic; Editing by David Cowell)