AOL Sees Future Tied to Ad Networks

NEW YORK AOL continued its evolution from a traditional Web portal to a networked advertising platform with the creation of a new division for its ad networks.

The new unit, called Platform A, will house the collection of businesses AOL has acquired over the past three years. At its core is Advertising.com, the direct-response network AOL bought in June 2004 that has become the largest on the Internet and a main driver of AOL’s business.

“We’re trying to take advantage of what we see as the emerging strength of the ad network business in our space,” said AOL CEO Randy Falco. “There’s been a fragmentation of audiences. There are more than 135 million Web sites right now.”

To re-aggregate those audiences, Platform A will encompass several networks: Tacoda, the behaviorally targeted service AOL recently purchased for $275 million; Third Screen Media, which runs ads on mobile devices; Lightningcast, a video network; and the Adtech ad server. All told, Platform A reaches 90 percent of Web users, AOL said. It will sell advertisers both performance-based and branding programs.

The reorganization comes six weeks after Time Warner executives said ad growth has slowed at AOL. Other formerly portal-centric Web businesses at competitors like Yahoo! and Microsoft have also experienced slower growth rates and have also been diversifying into ad networks that can reach Web users on many sites, not only those they own.

“When Randy and I got here, we saw where the networks were going and the growth of the Net business,” said Ron Grant, AOL’s president and chief operating officer. “We don’t think portals are big enough to meet the needs of advertisers.”

In a sign that the weight of AOL’s business is shifting from the portal model, the company is making New York its new headquarters. AOL had been based in Dulles, Va., since its founding.

Curt Viebranz, formerly CEO of Tacoda, will run Platform A as its president. Mike Kelly, president of AOL Media Networks, will leave AOL, the company said. Lynda Clarizio continues to lead Advertising.com, and Kathy Kayse, svp of sales at AOL Media Networks, will run AOL brand advertising. Both report to Viebranz.

AOL plans to eventually have a single data platform that would give it the ability to target ads across its different network businesses, Grant said.

Executives painted the reorganization as the “final stage” of AOL’s two-year business-model transition from relying on Internet access subscriptions to one driven by advertising.

“I don’t think portals are going to die,” said Falco. “I just don’t think they’ll have the heft they once had in the marketplace.”