November 8th, 2007

AOL Deal Marks Latest Digital-Ad Push

By Emily Steel
Wall Street Journal

AOL’s agreement yesterday to buy online-ad firm Quigo caps a $1 billion acquisition spree aimed at helping the Time Warner Inc. unit transform itself from a subscription-based Internet-service provider to a digital-advertising network.

It promises to be a tough slog. Advertising revenue at AOL rose just 13% in the third quarter, a slowdown from the previous three months, and Time Warner yesterday said AOL expected to post even lower advertising growth in the fourth quarter.

AOL’s goal is to turn itself into a one-stop shop for buying digital ads, both on AOL’s own Web sites as well as on mobile devices, online video and third-party networks, such as Advertising.com, which brokers ads on thousands of Web sites. That network of outlets, dubbed Platform A by AOL, collectively reached 94% of the total U.S. online audience in September, according to comScore Media Metrix. The effort is a massive shift for the company—AOL is giving up billions of dollars in subscription revenue, laying off thousands of employees and moving its headquarters to New York from Dulles, Va.

Quigo is the fourth company AOL has bought in the past year. AOL plans to use Quigo’s technology to let marketers match ads to content on Web pages. The idea is that a person reading a Web page about the World Series would see an ad for baseball tickets.

Founded in 2000, Quigo, which has about 100 employees, works with 500 publishers. AOL didn’t disclose terms of the deal, but a person familiar with it estimated that AOL paid about $340 million for the New York firm.

AOL’s strategy has yet to make a significant positive impact on the company’s bottom line, as it is just now starting to sell ads through Platform A.

“As we start to relaunch and reinvigorate...we will start to see some growth that is more robust,” AOL Chief Executive Randy Falco said in an interview yesterday.

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