The deal will help AOL tailor content to individual visitors based on their past browsing history. Perhaps more important for the company's bottom line though, Gravity's technology will also be used to make AOL's premium advertising business smarter, giving AOL the ability to serve targeted sponsored content and native ads to individuals more likely to be receptive to advertiser messages.
"We've been at the forefront of trying to get ads to become more like content," AOL CEO Tim Armstrong said in a phone interview Thursday. "And Gravity will help us serve better premium, high-value ads to consumers using data."
The acquisition will add some muscle to AOL's ad-tech stack, a group of platforms that positions the company to compete with Google, among others, for digital advertising dollars. It should also help solidify AOL's position next to Yahoo, a direct competitor that has made a number of acquisitions over the past few years. Yahoo's big-ticket deals have not been in the ad-technology space, while AOL acquired video ad exchange Adap.tv last year for $405 million dollars.
AOL's programmatic offering, Mr. Armstrong said, will get a lift too. "There's so much data on that side of the business, and Gravity has a very clean signal," he said.
The same technology used to figure out which articles to show visitors could be used to show them relevant display and video ads bought through automated pipes, said Gravity CEO Amit Kapur.
But Gravity's technology has been primarily used to personalize editorial content and native ads. The promise of the latter should fit nicely with AOL's programmatic pitch, in which the company has tried to get advertisers to commit large budgets by selling them on intelligent software that optimizes ad campaigns over time.
Getting the programmatic and premium sides of its business to work well together is key for AOL, which has tried to sell the two together in packages as part of its "barbell" sales strategy. "Gravity is the only company that basically fully optimizes the barbell across the board, and not only that but optimizes all the assets a publisher has," Mr. Armstrong said.
Peter Stabler, a senior analyst at Wells Fargo Securities, praised the deal in a research note. "We view the addition of Gravity as a potential avenue for AOL and its partners to increase the level of first party data applicable to inventory released to direct sales and the AOL exchange-traded marketplace offering brand and performance-oriented advertisers alike an additional level of interest-based targeting," he said.
Gravity, founded in 2009, has raised more than $20 million dollars. When asked if it is profitable, an AOL spokesman declined to comment