12 Burning Questions on AOL's Adap.tv Acquisition

AOL made a lot of noise this morning by announcing a $400 million deal to acquire the Web video ad platform company Adap.tv. In fact, it's a bigger deal than AOL’s acquisition of The Huffington Post in 2011. Which leads to lots of big questions: 1) Why does the online ad world want to push video into exchanges and automated ad buying, considering what that's done to display advertising? “We feel really strongly that just like the display space, premium matters,” AOL CEO Tim Armstrong told Adweek. “Automation is getting confused with pricing. If you look at our earnings, pricing went up for premium display. You’re really talking about the old-school banner business.” “You’re confusing programmatic and the format of video,” added Ran Harnevo, svp of AOL Video. “The big difference is that display is infinite. That’s what takes the pricing down. With video you have a lot of scarcity. And we are trying to create a marketplace that can actually take prices up. We’re betting on technology. Technology isn’t commoditizing the market, it’s supply.” 2) But aren’t video ad networks and exchanges filled with cheap inventory? Won’t selling premium NewFront stuff like that Sarah Jessica Parker ballet show cheapen it? “This is not about mixing things,” said Harnevo. “This is about improving very inefficient processes with private marketplaces and tools.” “Every exchange has a mix of ‘junk’ inventory as well as more mid-tail and premium,” said Brett Wilson, CEO of the video buying firm TubeMogul. “The key is filtering out what the advertiser really wants to buy.” 3) So does that mean AOL is going to sell its 15 original NewFront shows in Adap.tv’s exchange? They’re not saying yet. 4) What’s so great about Adap.tv anyway? “I think it's fair to say they built a business around mid- and long-tail sites,” explained Donnie Williams, chief digital officer at Horizon. “But it’s not some shadowy or dark corner of the Web. They offer full control and transparency. They have an exchange, but in recent years they’ve morphed into a DSP and a platform that caters to both sides. They’ve been getting good traction around private marketplace for companies like Vevo and ESPN. They’ve really opened up a nice big world of supply for us.” 5) What specifically can Adap.tv’s tech do? “Let’s say you’re looking to reach 30 percent of an 18-34-year-old male audience,” Williams hypothesized. “Historically, we’ve used one solution for Hulu, one for exchange, one for ESPN, etc. What Adap.tv does is say, ‘Hey, use our ad server—you can calculate true reach, traffic everything together and understand how video is working together.’” 6) How long was AOL looking at Adap.tv? Twelve months, per Armstrong. “This is the one of the most strategic things we’ve looked at since I’ve been here,” he said. “We believe it has the strongest potential.” 7) Is the Publicis-Omnicom merger a sign that AOL is right about a more programmatic video world? “They are going after size and scale,” said Bob Lord, the newly installed CEO of AOL Networks. “We’re building a platform that is going to allow for that better than today.” “Advertising should be conducted transparently in marketplaces where buyers and sellers transact in real time without intermediaries,” added Santo Politi, general partner, Spark Capital, which invested in Adap.tv. 8) Is Adap.tv for non-AOL sites? “We didn’t buy it for our video business,” said Harnevo. “We want the whole ecosystem to use it. AOL can build private exchanges if it wants to as more money shifts into programmatic.” 9) Who uses Adap.tv now? A roster of brands that includes T-Mobile, Mars Wrigley, Procter & Gamble, Johnson & Johnson, State Farm, Bank of America, Capital One, Acura, Kia, Jeep, Ford, Toyota, Chrysler and Sears. 10) What’s the difference between BrightRoll and Google exchanges? Is Adap.tv any better than video network businesses like Tremor and YuMe, both of which just had IPOs? “Automated buying that puts advertisers in control has always been distinct from ad networks and media arbitrage plays, and our longtime partner Adap.tv’s higher relative valuation in terms of revenue than the two ad network IPOs is proof,” said TubeMogul’s Wilson. “[Adap.tv’s] technology enables more control for the advertiser, and lower sales costs and better predictability for us. This is in contrast to an ad net that is bundling/packing media and in a knife fight for every campaign.” 11) What does this mean for Advertising.com? “We’re focused on getting deals closed, and these are the type of synergies we will look at to evaluate postacquisition closing,” said an AOL rep. 12) Does AOL have any designs on bringing Adap.tv to TV? The company isn’t saying as much, but that’s an obvious place for programmatic buying to go. It’s in the company’s name after all. And god knows TV needs help. “I firmly believe the time will ultimately come when TV itself becomes a digital medium. At that point this may prove to be one of the wisest acquisitions AOL ever made,” said LiveRail CEO Mark Trefgarne.

Performance Marketing

12 Burning Questions on AOL's Adap.tv Acquisition

Armstrong, buyers, Web video tech players provide some thoughts

Mike Shields

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