AOL + Tacoda: You've Got Scale

by Laurie Petersen, Jul 25, 2007, 6:00 AM

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AOL's acquisition of online behavioral targeting advertising network Tacoda for $275 million is all about scale.

"It's a great outcome for everyone and a great platform to really scale our business and BT. I'm excited to become part of the AOL team and to see what we can do," said Dave Morgan, founder and chairman of Tacoda.

The deal, which closed Monday night and was announced Tuesday morning, adds a leading behavioral targeting network to Advertising.com's third-party display advertising network--which is already the largest in the U.S., working with roughly 3,000 publishers. AOL acquired Advertising.com in 2004, and has operated that business as a separate subsidiary, which is the plan for Tacoda.

The behavioral targeting market is projected to increase to $3.8 billion by 2011, from $350 million in 2006, according to eMarketer. Through Tacoda's cookie-driven practice, advertisers can deliver messages to consumers based on where they have gone online, regardless of the content of a specific Web page.

Among Tacoda's clients are Coca-Cola, Bank of America and General Motors while its publisher network includes The New York Times and NBC Universal.

"The acquisition of Tacoda will build on our advertising momentum, letting us better serve advertisers by enhancing our ability to precisely target advertisements across an even broader network," said Ron Grant, AOL President and COO.

In an interesting twist, Tacoda rival Revenue Science says it will continue to power the behavioral targeting for AOL.com. (See related story.)

Jupiter Research analyst Emily Riley, who worked for Advertising.com when AOL bought it, called that deal "an unprecedented success" that succeeded in increasing the value of the company without destroying the culture.

The process was set off in May when Tacoda--which was founded in 2001--began looking for additional investment capital in the wake of mega-deals involving Google and DoubleClick, Yahoo and RightMedia, WPP and 24/7 Real Media, and Microsoft/aQuantive.

Google launched a behavioral ad product in April, and Yahoo recently introduced in the travel category its SmartAds--a behaviorally targeted product with creative assembled on the fly.

"I think it helps equalize the market," said Mark Egan, vice president and group account director for Havas' Media Contacts. "Yahoo has been a significant leader. Now AOL starts to look like a very good buying alternative. For those who were not getting enough reach from Tacoda, this provides tremendous scale for them."

While Morgan initially declared the firm's intentions to remain independent, the valuation based on the firm tripling its revenues this year and the escalated activity in the current market made the timing right, said Tacoda CEO Curt Viebranz.

The deal reunites Viebranz with Time Warner, a company he worked at for 17 years on the publishing side. He said there is no intention to marry Time Warner's consumer database with Tacoda cookie data.

Blogged Jay Sears of Contextweb.com: "It's a great hedge for AOL since many of Advertising.com's largest remnant advertising partners are coming into possibly unfriendly or at least "Frenemy" spheres of influence ... Google and Fox Interactive Media have their own designs for MySpace inventory; Microsoft has first dibs on Facebook, and Yahoo will be diverting traffic to RightMedia."

Earlier this year, AOL boughtThird Screen Media, the leading mobile ad network, and AdTech AG, an international online ad-serving company based in Frankfurt, Germany. In 2006, AOL acquired Lightningcast, which delivers ad solutions for video content.

With more than 200 ad networks in the market, look for more consolidation. Revenue Science is the leading behavioral targeting firm that is still an independent.

'07 Digital Advertising M&A Deals Top $12 Billion
Acquisition	Buyer	Date	Value
Digitas	Publicis	January	$1.3 billion
Adscape	Google	February	$23 million
Reprise Media	Interpublic	April	Undisclosed
DoubleClick	Google	April	$3.1 billion
Right Media	Yahoo	April	$680 million
24/7 Real Media	WPP	May	$649 million
aQuantive	Microsoft	May	$6.0 billion
TACODA	AOL	July	$275 million
Total			$12.027 billion-plus

Source: Compiled by Online Media Daily.

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