AOL Joins the Ad Acquisition Party

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These days, many Web surfers, particularly young ones, would rather spend time on social networks such as Facebook and News Corp's (NWS) MySpace, as well as blogs, video- and picture-sharing portals, search engines, and a host of other user sites that depend on content generated by users. Advertising dollars are following the audiences. AOL, Google, Yahoo, and others see ad networks, and their ability to place ads on a variety of Web sites through revenue-sharing partnerships and other deals, as a way to keep control of ad dollars by becoming one-stop shops for advertisers looking to get in front of mass audiences wherever they are on the Web.

Tacoda also promises to give AOL another way to use information on users to sell highly targeted, higher-priced ads on both its own network and across the Web. Though AOL and Tacoda have not fully worked out the details of their information-sharing relationship, Tacoda could potentially use what it knows of AOL users' Web-surfing behavior to place ads on other sites with which it has relationships. Tacoda could also serve highly targeted ads in fixed places on AOL properties to computers it recognizes from visits to other sites in its network.

The promise of additional information and tracking capability has helped fuel earlier ad-network acquisitions from competing Internet giants (see BusinessWeek.com, 5/21/07, "Behind Those Web Mergers").

Direct to TV

To be sure, the ability for AOL to increase the amount of information it has on users may alarm some Web surfers and privacy advocates. Similar—albeit larger—proposed acquisitions have aroused opposition from privacy advocates and government agencies such as the European Union. The Federal Trade Commission is now reviewing the proposed Google, Microsoft, and Yahoo acquisitions (see BusinessWeek.com, 5/30/07, "Much Ado About DoubleClick"). Tacoda and AOL will also face regulatory review before the merger can go through. The companies expect to complete the acquisition by the end of the year.

Morgan stressed that Tacoda will continue to keep information anonymous, monitoring computers only by the number on a tracking tag, or cookie, picked up by their computer when they visit a Web page in Tacoda's network. The company spent much of the day after announcing the acquisition assuring clients that their data is still their own and that AOL, a potential competitor to some of Tacoda's customers, does not have a new window into their inner workings. "We have been spending a lot of time today talking to our publishers and the ad agencies that are our clients," says Morgan. "They recognize the more scale that Tacoda has, the more value that we can deliver for them."

Perhaps the biggest long-term potential of the Tacoda/AOL partnership isn't online at all, but on television Morgan has long looked toward a future where TVs all have Internet Service Provider addresses. In such a world, information on Web surfing behavior could be synched with the TV and used to shoot targeted ads straight to the TV. The television ad market is expected to top $46.3 billion in 2011, roughly when Morgan and others expect the merger between TV and the Internet to start occurring. "We are going to take things one step at a time," says Morgan. "But we hope that what we are doing here on the PC will translate to the TV."

Holahan is a writer for BusinessWeek.com in New York.