Its $405 million acquisition of video ad marketplace Adap.tv closes two big loops for AOL.
The first is around video, which has become a bigger part of both its and rival Yahoo's strategies. Both portals have doubled down on original video content creation, but AOL has looked to video as an ad-tech solution, whereas Yahoo has largely pitched it as a "premium inventory" opportunity.
In September 2010, AOL acquired video content syndication network 5min and quickly placed the Israeli startup's founder, Ran Harnevo, at the head of its video operations. At the time, CEO Tim Armstrong said 5min represented the "missing piece in AOL's value chain that completes our end-to-end video offering from content creation to syndication to distribution to consumer experience and monetization."
As Harnevo explained the deal today, within the context of adding Adap.tv, 5min was about enhancing AOL's owned and operated properties. "Bringing in Adap.tv is about building platforms that are more scalable than a propertycentric strategy," Harnevo said. "It's not just about creating great video content and distributing it. It's about connecting to the 'open Web' through programmatic channels."
By purchasing Adap.tv, AOL is positioning itself to capture some of the $75 billion that goes to linear TV ads. (Digital video ads command $4 billion today, according to eMarketer.) When pressed for how much progress is being made in that area currently, Armstrong and Adap.tv CEO Amir Ashkenazi both said there are signs of such a movement, but that's about it.
The second loop is programmatic buying. There is no question that the automation of media buys is going mainstream. Armstrong and Ashkenazi want to drive that adoption into lucrative branding campaigns – the kind associated with traditional TV ads.
"Video is the ultimate format for branding, just as search is the ultimate format for direct response," Ashkenazi said. "Brand advertisers finally found a method that really works. So we are starting to see a shift from all formats to video advertising."
For the time being, Adap.tv will remain as a standalone brand and be housed within AOL Networks, the rebranded Advertising.com group that includes AOL's tech stack, including the demand-side platform AdLearn, the supply-side platform Marketplace, the retargeting tool Buysight and the ad server AdTech.
Bob Lord, the former Razorfish CEO who is now the head of AOL Networks and in charge of the company's exclusive programmatic partnership with Publicis Groupe, said it will take some time to definitively identify where Adap.tv's engineering and sales organizations will fit.
San Mateo, Calif.-based Adap.tv has doubled its staff to 200 this year and had planned to add 100 more staffers before 2014. Lord, who is on day seven as CEO of AOL Networks, said that the outlines of where Adap.tv can complement the "Live Advertising" initiative of the Publicis AOL Live venture will come together quickly.
"The opportunities for cross-selling between our existing properties and Adap.tv are fairly obvious," Lord said. "But integration takes time and we still need to work out the details."
Reiterating earlier comments during the Q2 earnings call, Armstrong noted that Adap.tv is already one of the ad-tech partners with whom AOL works.
"We have an idea of how to leverage and fuel Adap.tv, a little bit like we do with The Huffington Post and our other assets," he said. "Sight, sound and motion in the form of video is going to bring significant scale to digital advertising as a branding medium. It's part of the reason for this Adap.tv transaction, part of the reason our video business is taking off. 'Live' is a category that's underserved on the consumer and advertising side. And because of Adap.tv's ability as an enterprise software solution for video buying, we'll be able to make advancements in redefining live advertising for the Web."
The deal comes amid rapid changes in the video space. Video ad network YuMe priced its IPO today and Tremor Video is preparing for its first earnings release on Thursday.
Ashkenazi dodged questions about whether Adap.tv would have pursued its IPO plans had the AOL deal not come about.
"It's true, we were on the path for going public, but we got more excited by the opportunity to work with AOL," Ashkenazi said. "In opting to go with AOL, I believe we traded a good plan with a better one."