• by June 24, 2004

In case you've been hiding under a rock this beautiful day, the big news is America Online's acquisition of Advertising.com for the tidy sum of $435 million.

Interestingly, this morning I attended a breakfast forum on branding sponsored by Advertising.com. There were more than a few Advertising.comers in attendance. A few admitted they knew about the big news before it broke, and a few were just as surprised as everyone else. The Baltimore, Md.-based company had been planning an IPO.

The acquisition would appear to be a coup for AOL, which is struggling to right its advertising business and to aggregate the millions of eyeballs that engage regularly with the properties across its network. We're not just talking about subscribers to the AOL service-broadband and dial-up. We are referring to the millions of people who use AIM (AOL Instant Messenger) each day, ICQ and Netscape, for starters. And let's not forget about all of those people who come into AOL.com. If AOL can amass or aggregate these eyeballs, it has the potential to deliver large audiences to advertisers. It also offers a slew of more segmented opportunities.

Sure, AOL wants broadband subscribers. But it's now moving in fits and starts beyond the walled garden it was so roundly criticized for creating and maintaining in the past, to a process of building an overall portal or network, similar to Google. It's all about the network effect.

In Advertising.com, AOL gets a massive, one-stop ad network that's really much more than an ad network. It has strong tracking and targeting capabilities and reached 110 million users monthly. That amounts to 70 percent of all U.S. Internet users. The main selling point is its pay-for-performance proposition, something that the pay-per-click approach of rivals 24/7 and ValueClick doesn't offer. Advertisers are charged each time Advertising.com delivers a customer. As a packager of online advertising, Advertising.com takes ads from websites, search engines and e-mail publishers and distributes the campaigns across the Web. Imagine the network effect.

AOL says Advertising.com will be run as a separate division and will report to AOL Media Networks chief Michael Kelly.

The all-cash acquisition of Advertising.com should give AOL a strong assist as it attempts to leverage the uptick in online advertising. Universal McCann ad forecaster Bob Coen this week projected online advertising growth this year in the 20 percent range, hitting $6.78 billion.