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Online ad industry continues to sizzle with new deals

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The acquisition wave in the online advertising industry continued last month, as Time Warner's AOL announced plans to buy behavioral targeting ad network Tacoda for a reported $275 million and Microsoft Corp. acquired online ad exchange adECN for an undisclosed sum.

Microsoft's deal follows on the heels of its $6 billion acquisition of online ad agency and technology company aQuantive in May, a move described by Kevin Johnson, president of Microsoft's platforms and services business, as "a significant milestone in the build-out of our advertising solutions for all ad agencies and publishers on any Web site."

The purchase of adECN, which provides an online auction system for buyers and sellers of online display advertising, furthers that strategy, Johnson said in a conference call with financial analysts last month.

"The adECN acquisition complements the work we've done with adCenter [Microsoft's search platform], it extends the work that aQuantive brings and it now enables us to move forward with all of the core components that we need to enable this ad platform," Johnson said during the call.

Online ad business `a game of technology'

"This online advertising business and the online advertising platform is really a game of technology, which plays to our strengths. And because it's a game of technology combined with scale, it also requires capital, the data centers and servers to meet those needs," he said.

"When you put those things together, we believe that if you look out over the next few years, there will be very few significant players in the advertising platform business, and we intend to be one of the top two."

In providing financial guidance for analysts, Johnson projected that in fiscal 2008, Microsoft's online ad revenue will grow by more than 20%.

Jupiter Research analyst Emily Riley said the adECN acquisition gives Microsoft the technology it needs to create its own online marketplace and manage its own inventory better, but that it does not provide direct competition to existing ad networks, such as DoubleClick, which Google acquired in April for $3.1 billion, and Tacoda.

"Ad exchanges have been adopted fairly recently by midtier publishers and direct response advertisers, but they don't necessarily compete on the level of brand-name networks," Riley said. "Essentially, what Microsoft gets is the technology itself, rather than with Tacoda, which brings a lot of great relationships to AOL."

Mike Kelly, president of AOL Media Network, said the Tacoda acquisition will strengthen AOL's online ad business through its ability to provide behavioral targeting capabilities to advertisers.

"Tacoda has built a network of publishing sites around behavioral targeting, and it is very data-driven," he said. "Being able to get to audience behavior is key. We can use the data to decide where to show ads, and it is very ROI-focused."

AOL has also been building out its online advertising platform, starting with its acquisition of Advertising.com in 2004. This year, it acquired Adtech AG, an online ad serving company based in Frankfurt, Germany, and Third Screen Media, a mobile ad network.

"We really see the future of the business continuing along the lines of aggregating inventory and packaging inventory so marketers can get the response they are looking for," Kelly said. "This is all about advertisers moving money online, and how do we get in front of them with the most compelling set of offerings that allow them to reach their target audiences."

Kelly said the Tacoda acquisition, as well as the development of new services, will allow AOL to better serve b-to-b advertisers. "We can go to b-to-b customers and help them generate behavior-targeted campaigns that can reach business customers in a lifestyle environment," he said.

AOL is also exploring new ways to use services, such as AIM, its instant messaging service, for business customers.

"We have an enterprise version of AIM, and it is significant for business users. We are looking at ways to match behavioral targeting with AIM so we can reach people using AIM at work," Kelly said. "I'm intrigued by creating a target group of professional AIM users, and approaching b-to-b advertisers with that offer."

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