Markets are becoming increasingly fragmented as the result of global competition. As more companies vie for niche market positions, they spin out a broader array of product and service offerings. The Web, with its relatively low barriers to entry, has accelerated this competition by orders of magnitude. The wide availability of online information resources has also made potential customers far more aware of their options than did broadcast media, as well as greatly raised their expectations.

Both increased choice and greater knowledge have made traditional advertising much less effective online than it was in previous media. Banner ads— an interesting novelty not many years ago—are largely ignored today unless they are closely linked to the interests of a specific Web audience. Unlike those of TV viewers, these interests can have an extremely narrow focus. On the Internet, people often gravitate toward sites that provide social interaction organized around highly specific concerns.

The first corporate efforts to capitalize on these network dynamics sought to use conventional demographic segmentation and targeting techniques that were first developed for offline advertising. However, such approaches do not port well to the Internet. First, they rely on historical customer behavior data, which is often missing or undeveloped online. Second, the new communities of interest now forming online are rarely segments that have broken off from larger pre-existing markets. Instead, they represent entirely new micromarkets that are emerging from the Web bottom-up.