AOL Acquires Behavioral-Targeting Shop Tacoda

Portal's $275 Million Offer Trumps Microsoft's Bid for Third-Party Ad Network

By Abbey Klaassen

Published: July 24, 2007

NEW YORK (AdAge.com) -- AOL is bringing behavioral targeting into its stable, acquiring Tacoda, an advertising network that targets users by their online behavior, for $275 million.

The Time Warner-owned internet portal beat out Microsoft in the bidding, according to a person with knowledge of the deal. AOL wouldn't say whether it would deploy the technology on its owned-and-operated sites or across its Advertising.com display network, but would only tout the value of the scale the Tacoda network brings to the table.

Tacoda's scale is important
Scale is important in behavioral targeting, said Mike Kelly, president of AOL Media Networks. "If you don't have scale you're not going to get critical mass on these behavioral packages."

Tacoda launched in 2001, marketing its technology to web publishers and, three years ago, shifted to an ad network approach in which it tracked users across a variety of web publishers with whom it had relationships.

Mr. Kelly said he does not expect being owned by a portal to affect Tacoda's relationship with online publishers. "We have a lot of experience with that with Ad.com," he said. "It's one of the reasons why Ad.com is run as its own entity and Tacoda as well. We've proven it doesn't create a conflict, but creates more scale and value."

Targeted display advertising is expected to be a growing business. One reason: Behavioral-targeting technology is helpful for monetizing sites that aren't naturally commercial or contextual. For example, if a person is surfing an auto website and then moves to a national news site, a behavioral-targeting firm can detect that surfing history and serve up an auto ad on the news site, knowing this person is interested in cars.

Dave Morgan, chairman of Tacoda, said the question for the company was, "How do we get bigger faster? The demand in the market is extraordinary." He suggested Yahoo's recent announcement that it would increase focus on performance advertising is an opportunity for behavioral-targeting firms such as Tacoda, whose technology is usually attractive to brand advertisers.

Expensive form of ad inventory
Still, for advertisers, buying behavioral targeting can be about 20% more expensive than buying other types of online inventory. Some buyers suggest that marketers will begin to use the technology more when they begin to hit diminishing returns from other tactics, such as search.

Incidentally, AOL has been offering behavioral targeting on its site, although not through Tacoda. It had been licensing technology from Revenue Science, one of the other independent behavioral targeting firms.

"AOL is a happy customer of ours for a year and a half, they continue to be and plan to continue to be," said Bill Gossman, CEO of Revenue Science.

AOL is not considered to be done spending in the ad-network space. It recently purchased German network AdTech AG and Third Screen Media, a mobile advertising network, which will live within its Advertising.com unit. Tacoda, however, will operate as a separate division of AOL, much like Ad.com. Mr. Morgan is expected to take a senior executive role at AOL.

Earlier this year, AOL CEO Randy Falco talked up the scale that networks create to a group of advertisers at an iMedia Summit.

"The share of marketing dollars flowing to those top four [Google, Yahoo, MSN and AOL] is increasing," he said. "The simple fact is it's hard to build a network with the scale of AOL."

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