AOL Joins the Ad Acquisition Party

With its plan to purchase Tacoda, AOL will take on Google, Yahoo and Microsoft in the swelling online advertising market

by Catherine Holahan

AOL, once a leader on the World Wide Web, is lately playing catch-up—most recently in the acquisition arena. On July 24, the company announced plans to acquire Tacoda, an advertising company that tracks what people do on the Web and uses that information to determine where to place online ads.

The terms of the deal were not disclosed, but a source familiar with the acquisition put the price at around $275 million in cash. Time Warner (TWX)-owned AOL also will gain Tacoda's roughly 100 employees and its chairman and co-founder, Dave Morgan, an online advertising veteran.

Ramping Up the Battle

The announcement follows close on the heels of similar acquisitions by AOL's bigger rivals. In April, Google (GOOG) said it will spend $3.1 billion for DoubleClick, which places and then tracks the performance of targeted advertisements for many of the Web's largest sites, including AOL (see BusinessWeek.com, 4/14/07, "Google's DoubleClick Strategic Move"). Then, Yahoo! (YHOO) said it will buy the 80% of online-ad exchange Right Media it doesn't already own for $680 million, and later, Microsoft (MSFT) put up $6.1 billion for ad network aQuantive (AQNT) (see BusinessWeek.com, 5/18/07, "Microsoft's Big Online Ad Buy").

AOL hopes Tacoda and an earlier acquisition of Advertising.com will give it the added heft it needs to compete with the big boys for online ad dollars. According to eMarketer, the online advertising market in the U.S. will swell to about $20 billion this year.

Tacoda tracks visits to key pages on some of the Web's most popular properties, including The New York Times (NYT) and Kelley Blue Book. It then uses the information gleaned from those visits to send related, targeted ads to specific computers whose users are clicking on high-traffic sites throughout the Web. So, for example, Tacoda can deliver a car ad to a computer that has recently looked up the average price of a new four-door sedan on an autos site, even when the computer user has moved on to a different site. "This is really about expanded reach, great publisher tools, and our belief that it will help us grow," says Mike Kelly, president of AOL Media Networks, the division responsible for AOL's advertising business. "AOL is giving us a chance to get big fast," says Tacoda's Morgan.

Maintaining Control of Ad Dollars

Ad networks such as Tacoda have grown in importance for Web titans seeking to remain key destinations for advertisers in an increasingly competitive Web landscape. AOL and Time Warner's other online properties attract more than 123 million unique users per month, ranking just behind Yahoo and Google in terms of individual visitors, according to June statistics compiled by comScore (SCOR). However, in recent years, AOL, Yahoo, and other so-called portals, which aggregate information and features from around the Web, have struggled to command as much of their audiences' time.