Why Verizon Coveted AOL’s Ad Technology and Mobile Video

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What Verizon Gets From AOL: Programmatic Video Ad Tech

This isn’t your parents’ America Online.

The early Web pioneer once known for screeching dial-up modems and “You’ve got mail” has undergone a dramatic transformation since the collapse of its merger with Time Warner Inc., one of the biggest takeover failures in history.

As a standalone company since 2009, AOL has become a competitor in the growing online advertising business. That transition helped attract interest from Verizon Communications Inc., the largest U.S. wireless carrier, which Tuesday agreed to buy AOL Inc. for about $4.4 billion. What Verizon wants is to make more money from mobile video, and the new AOL can help.

AOL is now focused on online video and on so-called programmatic advertising, which uses computer algorithms rather than salespeople to buy and sell ad space on websites. The system works like an online marketplace: a shoemaker, for example, can get a display ad on a website in milliseconds, less than the amount of time it takes a reader to load a Web page. And data gathered on people’s browsing habits helps the shoemaker reach the right consumer with the right ad at the right time.

The goal is to become an automated middle man between advertisers and publishers. Last month New York-based AOL unveiled technology called ONE that helps marketers decide where to best spend their money, putting it in direct competition with two online ad giants, Google Inc. and Facebook Inc. The technology allows advertisers to see whether consumers are buying more products after seeing an ad on a smartphone, and enables them to shift more spending to mobile devices from desktops and television.

Online Video

AOL’s reinvention has come largely through investments. The biggest was the $418 million purchase in 2013 of Adap.tv, which matches advertisers and video publishers through an exchange.

AOL Chief Executive Officer Tim Armstrong has also been investing in the company’s websites to broaden their global audience. The Huffington Post, for example, has recently introduced sites in Greece and India.

Armstrong also wants to grab a share of the advertising dollars that are being shifted from television to online video as more Americans watch TV on the Web. AOL recently announced a deal with NBCUniversal, in which NBCUniversal video clips -- from networks like Bravo, E!, Esquire, NBC and USA -- will be available on AOL’s websites and apps. The companies will co-develop original online video series.

So far, the strategy has been working. Sales at the platforms unit, which includes digital advertising, grew 21 percent to $279.8 million last quarter.

AOL said Tuesday that the combination with Verizon “brings us to the scale of Facebook and Google.” Maybe not just yet, but it does make AOL a more powerful rival.

“It’s an ambitious plan,” Roger Entner, an analyst at Recon Analytics based in Dedham, Massachusetts, said of the deal with Verizon. “The mobile advertising market is dramatically dominated by Google.”

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