• by Joe Mandese  @mp_joemandese, July 24, 2007

In the latest installment of what has been a breath-taking consolidation of the digital and online advertising services industry, AOL this morning announced a deal to acquire TACODA, one of the leading firms in the so-called "behavioral targeting" sector, which enable marketers to deliver ads to online users based on past visits to other relevant sites and content. Terms were not disclosed, but executives familiar with the deal say it is valued at $275 million.

While not nearly the scale of other recent online ad services acquisitions, such as Google's agreement to acquire online ad server DoubleClick for $3.1 billion, or Microsoft's deal to acquire aQuantive for $6 billion, AOL's TACODA deal reflects what is still a small, but important and rapidly growing part of online advertising, and one that some observers expect to begin impacting offline media like interactive television.

According to the most recent estimates from online industry stats keeper eMarketer, the behavioral targeting market is set to increase to $3.8 billion by 2011, from $350 million in 2006.

The other major players in the behavioral targeting industry include Revenue Science, AlmondNet, BlueLithium, and Undertone Networks, but many publishers maintain their own behavioral targeting systems.

The expansion of behavioral targeting services is significant for the overall advertising industry and could begin to impact the use and perception of offline marketing, because it alters the traditional model of delivering ads to people based on the context of the content that is adjacent to their advertising message. In fact, ads served via behavioral targeting may not appear relevant to the content on a Web page, but are based on visits consumers have made to other relevant sites. The practice effectively disassociates advertising messages from media content, and bases them purely on consumer behavior.

In theory, that same approach could be applied to television, or other electronic media as systems are developed that can track user behavior and serve ads to people based on their behavior.

The practice is liked by publishers because it creates greater value for inventory that otherwise might not seem relevant to an advertiser. A car company ad, for example, might be served to a person visiting a seemingly irrelevant, and ostensibly lower-demand Web site, based on the fact that the consumer had previously been visiting automotive related sites.

According to this morning's announcement, TACODA will operate as a wholly owned subsidiary of AOL and will continue to work with existing publishers, advertisers and agencies, but would also now be able to tap into AOL's massive portfolio, as well as its Advertising.com unit, to create one of the most powerful and extensive behavioral targeting networks in the industry. That in turn should attract bigger brand marketers to TACODA and the field of behavioral targeting in general.