AOL ups digital advertising stakes with Adap.tv buy

Profile picture for user slauchlan By Stuart Lauchlan August 7, 2013
Summary:
AOL has been carving a new role of itself, investing heavily in the digital video space, as part of a push to evolve from a subscription-based ISP into an advertising-supported digital media business.

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Tim Armstrong

As a pioneer of the World Wide Web, AOL lost its market lead to the likes of Facebook and Google a long time ago.

But the company has been carving a new role of itself, investing heavily in the digital video space, as part of a push to evolve from a subscription-based ISP into an advertising-supported digital media business.

It's a strategic direction seen again this week with AOL's $405 million purchase of Adap.tv, a digital video advertising platform that fleshes out the firm's Adtech stack.

Adap.tv is pitched at marketers in need of technology to plan, buy and measure ROI on digital television and online videos.

According to research firm eMarketer, CMOs will spend $4.1 billion on digital video ads in the US this year, up 41 per cent from 2012. In 2012 alone, Adap.tv supported more than 26,000 global ad campaigns, which ran on approximately 9,500 websites.

AOL CEO Tim Armstrong, says Adap.TV is the latest stage in a longer journey:

"AOL and Adap.tv share a deep and direct vision on video and advertising and a will to aggressively pursue, what we believe to be a decade-long industry shift that will move tens of billions of dollars from TV advertising to IP-delivered video advertising.

"Over the last 3 years, AOL has rapidly scaled our video footprint and revenue, and when the acquisition of Adap.tv closes, we'll have more than doubled our video revenue and have a combined audience reach of 140 million unduplicated video viewers in the US and only second to Google in reach at 167 million viewers."

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He adds that there are three main reasons for acquiring Adap.tv:

"The first is, Adap is the only player who's got a marketplace, meaning buyers and sellers are built out at scale on the platform. And more importantly, underneath that marketplace Adap is a true technology company with some of the best computer scientists in the world at it and also some of the best product people and a very strong sales organization. What they have built as a company is essentially engineering-led and driven, which is really important in this space as software starts to get into advertising.

"The second thing that is important is, their growth rates in comparison to some of the other assets out there. Adap.tv's model, because it has a network effect behind it with advertisers and publishers, allows for, essentially, a high-scale frequency network that gets smarter and smarter over time. And the output to that is actually seen in their growth rates.

"The third pillar is, acquisitions and our ability to get very, very talented people. What drives good ideas and good technology are the people. And I think Adap.tv has the best team in this space."

Programmatic

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Adap.TV also supports AOL's investment in programmatic advertising, defined by Armstrong as the automation of the advertising business and a natural progression of software integrating with advertising. He adds that the advent of programmatic advertising has created two specialty areas within advertising: media sales and enterprise system sales.

Of some consequence is that programmatic advertising is non-price dependent. Armstrong explains:

"Programmatic advertising is not low-quality or low-priced inventory. It is a software platform that allows advertisers and publishers to yield manage planning, serving, targeting and measurement of advertising campaigns.

"Pricing is a function of ROI, yield management and brand engagement, not a function of automation or programmatic. Premium inventory and formats will continue to receive premium pricing in a programmatic environment, particularly, as inventory is increasingly, programmatically traded on private exchanges or in exclusive environments."

Being able to offer programmatic advertising appeals to enterprise customers, says Armstrong:

"I met with one of the largest direct advertisers on the Internet for the last 10 years last Thursday in Palo Alto. Essentially, they came to the meeting and said, 'We would like to have AOL be one of our 5 or 6 giant strategic partners for 2014, but we wanted just not only do direct response with you anymore. We want to go, actually, on this side of the barbell as well and do marketing services and brand advertising'.

"As software gets better and better and better, that's why were so interested in Adap.tv, at being able to really transparently show advertisers the value they're getting. When advertisers are very educated and understand the inventory and the ROI very well, they start to migrate into pricing patterns that actually are not price dependent. They are dependent on the ROI."

Premium 

On the premium side of AOL's business where there are programmatic and private marketplaces, Armstrong expects to see some initial disruption among customers. But he believes that programmatic advertising will ultimately lead to more efficient processes and make advertising more competitive overall because advertisers will want the best inventory and best ROI:

"There's been a lot of noise in the industry around programmatic. But if you actually look factually under the hood, you basically see premium pricing on premium audiences and premium formats. You see advertisers getting smarter and smarter about the ROI and the targeting abilities and transparency on an individual going from bulk impressions to individual impressions.

"The part of the business, I think, that is getting disrupted is one we call the old banner business. And part of the reason it's getting disrupted is because there's better formats and better processes out there, and that's why you see us going the Adap.tv deal and migrating more towards the premium side of the business because we can give advertisers better results and publishers better yield."

All told, Armstrong sees Adap.tv as a critical component in reshaping AOL's offerings in the advertising market:

"If you look out to the future, advertisers and publishers are going to want real-time, accurate, high-quality, results-oriented advertising that touches consumers and advertisers and publishers with material benefits.

"Underneath that is the ability that you have to serve cross-screen. It has to be IP-delivered, and it has to be done not in bulk, but on an individual impression basis.

"I believe our stack is one of the leading, I believe, with today. We have the number one best programmatic video stack in the marketplace."