AOL to buy Advertising.com for $435 million

America Online Inc. (AOL) has agreed to buy online marketing startup Advertising.com Inc. for US$435 million in cash, it said Thursday, in a move aimed at shoring up its ad business among mounting competition from Internet rivals.

Advertising.com operates by acquiring ads from various Web sites, e-mail publishers and search engines and then places the ads for customers using its proprietary AdLearn technology based on objectives such as lead generation and customer acquisition, AOL said.

The Baltimore, Maryland, advertising business was founded six years ago and is growing rapidly, AOL said, with 300 employees and operations in the U.S., the U.K., France, Germany, Norway, Sweden and Denmark. The company reported an 80 percent increase in revenues in 2003 to $132 million, with a profit from operations of $12.1 million.

Advertising.com operates the industry's largest third-party advertising network, AOL said, with over 110 million unique visitors a month.

Online advertising in general is showing strong growth and AOL is aiming to strengthen its position in the market through the acquisition, AOL Chairman and Chief Executive Officer Jonathan Miller said in a statement Thursday.

Most of Advertising.com's business comes from distributing ads for customers who pay on a performance basis, according to U.K. representative for the company Will Becker. Pay-for-performance advertising has proven to be a lucrative market for online players such as Yahoo Inc. and Google Inc., which have both moved to expand their advertising platforms in recent months.

According to AOL, pay-for-performance media accounted for a greater share of online advertising than CPM (cost per thousand of ad impressions) for the first time in the fourth quarter of 2003. So it is perhaps no surprise that AOL is pushing to capture more of the market as it continues to reshape itself to make up for continuing losses in its core Internet access business. The company has put a renewed focus on areas like search and advertising. In fact, it claims to have rebuilt its ad business, showing two consecutive quarters of sequential advertising growth earlier this year, for the first time since 2000.

AOL said that buying Advertising.com would add an essential piece to its advertising program, allowing it to offer clients more comprehensive ad campaigns.

Additionally, the deal could bolster AOL's ad business in Europe where Advertising.com has seen strong growth, according to Becker.

The acquisition is expected to close in the third-quarter of this year, according to AOL. Advertising.com will remain in Baltimore where it will be managed as a separate company, AOL said.

IDG News Service

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