TARGETING
With TACODA in Tow, Will AOL Dominate?
July 25, 2007

Once a titan, then a digital punchline, AOL grabbed headlines by plunking down a reported $275 million for TACODA. But will BT return AOL to dominance?

There's an old Pet Shop Boys song that pretty much sums up AOL's acquisition of TACODA, an announcement that managed to blot out the sun for today's news cycle.

"I've got the brains, you've got the looks, let's make lots of money," the singer croons again and again.

Well, maybe the Pet Shop Boys weren't digital marketing visionaries, but today's deal highlights the necessity for collaboration that distinguishes the interactive space. In Tacoda, AOL found the technology it needs to serve up truly relevant ads to its users. But by the same logic, Tacoda Chairman Dave Morgan explained that his firm had found a media platform large enough to deliver on the promises of behavioral targeting.

So, how does the tune go in the digital age? How about: "I've the technology and the brands, you've got the audience and the content, let's make lots and lots of money."

True, it doesn't have as nice a ring to it as the original, but the deal should be music to a marketer's ears, according to Jim Meskauskas, VP director of online media, ICON International.

"AOL's acquisition of Tacoda demonstrates that technology as well as content continues to be the engine of the future of media," Meskauskas said. "With AOL's wealth of content and Tacoda's ability to convert inventory that alone consists of mass, blind impressions to more precisely targeted advertising, AOL will now be able to scale up delivery against niche audiences to a level of more meaningful reach for advertisers."

Shotguns vs. rifles
Today, the interactive space is a macro game, with publishers and advertisers alike pumping out material in the hope that it will somehow be relevant to the user. But the appeal of BT is that where advertisers once had to fire a wide shotgun blast in the hopes of hitting a handful of targets, a single, accurate shot will now do the trick.

That means companies like AOL, Google and Yahoo! are scrambling to establish first position in what looks like the next interactive windfall: BT ads on a viable scale.

"Over the past few years, AOL has lagged behind competitors like Yahoo with respect to its ability to target online advertising," Tom Hespos, president of Underscore Marketing, said. "The Tacoda acquisition gives AOL a platform with which it can offer both its own ad inventory and inventory from the Tacoda network in a behaviorally targeted fashion that greatly enhances its value to advertisers. If AOL is able to manage this new asset effectively, it will be able to leapfrog competitors with respect to ad targeting capabilities."

Of course, Yahoo and Google aren't exactly sitting still. In April, Google launched behavioral ad results for AdWords. The application changes ads based on a user's previous queries. And for its part, Yahoo launched a revamped SmartAds that combines demographic targeting with real-time user information.

A brand new world?
While it's easy to view AOL's Tacoda buy as a technology grab, one somewhat overlooked portion of the deal is the BT firm's roster of brand-name clients, which includes Coca-Cola, Panasonic, Bank of America and General Motors. That's a roster that could work wonders to buttress Advertising.com, a third-party display network AOL bought back in 2004.

"Tacoda successfully aggregated a lot of high-quality publisher inventory with its exclusive brand advertiser focus on behavioral segmentation techniques," said Christopher Batty, VP of sales at Gawker Media. "This would appear to be an effort to shore up any Advertising.com vulnerability as better brands come into the market to enjoy what for too long has been a free ride in brand development for direct marketers."

While BT still reminds most big brands of an English phone company, the market for such precisely served ads is likely to mushroom in the coming years as more and more brands take note.

In June, eMarketer predicted that the behavioral targeting market would increase to $3.8 billion by 2011, from $350 million in 2006.

What's next?
While reading tea leaves isn't easy, we do know that there are only a handful of independent BT firms left. Revenue Science, AlmondNet, BlueLithium and Undertone Networks all remain unaffiliated. But it probably wouldn't shock anyone to see one of those companies join the list of the recently acquired. The only question will be to whom will they sell and for how much?

As for AOL, iMedia Communications, Inc. CEO Rick Parkhill says the AOL's most recent move should delight advertisers.

"Dave Morgan and his team have worked hard to pioneer behavioral marketing," Parkhill said. "Dave's early vision of behavioral targeting capabilities led to the establishment of a premier network with tremendous capability. This is another smart move by AOL and will only enhance their capabilities to deliver quality to their advertisers."

Michael Estrin is associate editor at iMediaConnection. Read full bio.

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