AOL to Acquire Ad Network Tacoda

NEW YORK AOL continued placing its bets on advertising networks through a deal to buy Tacoda, a behaviorally targeted network that caters to brands.

The addition of six-year-old Tacoda would bring to AOL an ad network that works with 4,000 publishers to show advertising based on users’ prior Web behavior. Visitors who have been on car-comparison sites, for example, might see an auto ad when on a sports site.

Financial terms of the transaction were undisclosed, but sources put the price tag for the 100-employee company between $200 million and $300 million.

The addition of Tacoda complements AOL’s Advertising.com, the Internet’s largest display ad network that mostly attracts performance-based advertisers. Industry analysts have credited Advertising.com as a key driver of AOL’s recent ad revenue surge by helping AOL make more money from its extra inventory as well as extending its reach through its advertiser network.

“What Web 2.0 has done is create a lot of inventory and fragmentation,” said Mike Kelly, president of AOL Media Networks. “We’re seeing the rise of networks aggregating this inventory, then packaging it to increase the revenue to publishers and the scale to advertisers.”

Curt Viebranz, CEO of Tacoda, sees an opportunity for Tacoda to make AOL inventory more valuable while expanding its own network.

“It’s going to allow us to scale more quickly than we’d have been able to do on our own,” he said.

Behavioral targeting, while a small part of the online ad market, is expected to grow quickly as publishers look to wring more money from their ad inventory and advertisers seek to reach customers with relevant messages. According to eMarketer, behavioral targeting will grow from $350 million last year to $3.8 billion in 2011.

The acquisition is the latest in a string that AOL has made as it continues to remake its business to fully embrace the fast-growing Internet ad market. In addition to making its AOL.com portal fully ad supported in 2006, the Time Warner company has made several moves into the business of showing ads on other sites following its acquisition of Advertising.com in 2004. In 2006, it bought online video ad network Lightningcast, and this year it purchased mobile ad network Third Screen Media and ad server AdTech.

AOL will also add a prominent interactive ad industry veteran to its management ranks. Tacoda chairman Dave Morgan will move to an undetermined senior executive role at the company.

“This is going to help Tacoda get a lot bigger a lot faster if you look at the track record of AOL with Ad.com,” he said. “We just realized the market is happening now and you’ve got to get big now.”