• by Gavin O'Malley  @mp_gavin, April 30, 2008

Betting on the continued success of ad networks, Cox Enterprises has agreed to pay $300 million for Adify, a technology and media company focused on vertical online advertising.

The San Bruno, Calif.-based Adify will operate as a stand-alone company and will continue to be led by Russ Fradin, president and co-founder of Adify.

The parent company of Cox Newspapers and cable company Cox Communications said its subsidiary Cox TMI, Inc. will acquire Adify.

"Our advertisers were looking for ad network solutions," said Rodney Mayers, assistant vice president of Interactive Media at Cox Enterprises. "We want to be relevant, and there's a medium that's mature enough to invest in."

Adify was founded in 2005 by the team that created Flycast Communications--a direct-response online advertising solution--and has received an estimated $27 million from Venrock Associates and U.S. Venture Partners, as well as GE Commercial Finance, NBC Universal, Inc., and Time Warner Investments.

Since the launch of its services in late 2006, Adify has helped build over 100 vertical ad networks for top media companies, including Martha Stewart Living Omnimedia, NBC Universal, Forbes, Reuters, Time Warner, The Washington Post Co., and The Guardian.

"This is where advertisers are moving their budgets," explained Joelle Gropper Kaufman, vice president of media operations for Adify.

A self-service ad network, Adify gives publishers the freedom to negotiate their own ad rates, and reject unwanted advertisers. On average, Adify takes about 20% of the revenues from the relationships.

As part of Cox, Adify will have the opportunity to invest more aggressively in new targeting technology, along with efforts to help publishers better manage their assets, added Kaufman. "We've been evolving our technology, and this will help accelerate that process," she said.

Just last month, Adify rolled out Adify Widget Share, a content syndication platform that lets advertisers and media outlets distribute content like Flash games, RSS feeds and video across sites within a given network.

Adify reportedly took in revenues of $7 million in 2007 and an expected $35 million this year, although a source close to the deal insisted those numbers are low.

Both companies expect to complete the transaction in May 2008.

The deal comes amid continued debate over the merits of ad networks. ESPN, for one, recently decided to stop working with Specific Media and other networks because it believed they devalued the brand and undermined its premium ad sales efforts.

Another issue is the sheer number of ad networks for media planners to choose from. Yet despite a sea of over 300 networks, that number is only expected to grow, according to research recently released by consulting firm The Rubicon Project.

Rubicon expects that most of the growth will come from networks that cater to big brands, and focus on specific and psychographics. Martha Stewart Living Omnimedia, for instance, recently started an ad network to extend its audience reach.

Globally, advertisers are expected to spend more than $3 billion on ad networks, according to a 2007 study by JP Morgan and comScore. About $2 billion of that amount is estimated to come from within the U.S.

Three-quarters of brand advertisers and direct marketers plan to spend more on ad networks this year than in 2007, according to a recent survey conducted by Collective Media.

Cox Enterprises, which reported revenues of $15 billion last year, is made up of Cox Communications, Inc. (cable television distribution, telephone, high-speed Internet access, commercial telecommunications, advertising solutions and Travel Channel); Cox Newspapers, Inc. (newspapers, local and national direct mail advertising); Cox Television (television and television sales rep firms); Cox Radio, Inc. broadcast radio stations and interactive Web sites); Manheim, Inc. (vehicle auctions, repair and certification services and web-based technology products) and Cox Auto Trader (automotive publications and a majority stake in AutoTrader.com).