Jay Sears, SVP of ContextWeb, on AOL-Tacoda


Jay Sears: Before I begin, I want to know what part of the $275 million purchase price is a premium for the omnipresent embodiment of behavioural targeting, Tacoda Chairman and conference-rat Dave Morgan. Heck, I don’t even know the name of the guy who runs Revenue Science. 

Seriously, the Tacoda deal will help solidify AOL’s Advertising.com’s domination in behavioural targeting and performance-based display ads. Advertising.com has the largest reach of any ad network and works with 3,000 publishers and all the large direct-response advertisers. Given that the valuation multiple seems closer to a 24/7 takeout multiple than a RightMedia or aQuantive multiple, it looks like AOL made a great deal.

Tacoda’s cookie-dropping program (where publishers drop cookies on users without serving banner ads at all) will allow Advertising.com to engage with publishers that might otherwise be unwilling to sell them inventory at reduced and uncertain remnant rates. It is also a great hedge, since many of Advertising.com’s largest remnant advertising partners will soon be in…

unfriendly or at least “Frenemy” territory: Google and Fox Interactive Media have designs on MySpace inventory; Microsoft has first dibs on Facebook, and Yahoo! will be diverting traffic to RightMedia.

What does all this mean?

1.    The Long Tail Remains Untapped

None of the now five big advertising deals (AOL/Tacoda; YHOO/RightMedia; GOOG/DCLK; MSFT/aQuantive; WPP/24-7) focus on the Long Tail.  We know consumers are moving to the Long Tail and we know advertisers pay us to reach them, so what’s the story? According to Technorati, there are over 70 million blogs at last count. Google, via its Adsense program, is the sole player in the Long Tail with distribution on between 250,000 and 1,000,000 sites (depending on who you believe).

In contrast:

  • Tacoda: 4,000 sites
  • RightMedia (Yahoo!): 1,000 sites (plus 60 ad networks)
  • 24/7 Real Media (WPP): 950 sites
  • DrivePM (aQuantive/Microsoft): 250 sites
  • DoubleClick (Google): 1,000 sites (ad serving, not media)

So it’s time one of the acquirors focused on the Long Tail.

2.    Consolidation will continue

This is just the beginning. The big four (Microsoft, Yahoo!, Time Warner AOL, Google) will continue to…

hoover up smaller players. And don’t forget our friend Rupert over at Newcorp Fox Interactive Media and any number of private equity guys.

Nor is consolidation just being driven by the buyers: There are too many ad networks (200+ at last count). Without technology and a unique selling proposition (sorry, could not resist), these guys are going to be taken out at low multiple, marginalized, or go the way of the dodo.

3.    Everyone’s Still Focusing on Remnant Inventory, Not Premium

RightMedia and 24/7’s ad network business are clearly built to monetise remnant (Yahoo’s Susan Decker calls it “non-premium” but let’s call a spade a spade).  DoubleClick doesn’t have a media business anymore (it had one in the late 90s, run by none other than ex-Yahoo!’s sales head Wenda Millard, but made the mistake of listening to Wall Street and sent the media guys packing). DoubleClick does run ad serving for the largest, biggest publishers (AOL’s ad server was built by DoubleClick–in part by ContextWeb’s CTO John Pavley when he was at DoubleClick–so it is funny they are the only company that did not buy an ad server). DrivePM, the aQuantive ad network, is the smallest division of aQuantive. It pulls remnant from top comScore sites and is known for its expertise in performance based media.

Tacoda is an interesting hybrid of premium and remnant since AOL’s Advertising.com will be able to use its cookie program to derive value from large premium publishers without serving banner ads.  Ad.com can drop cookies on premium inventory without paying premium rates and re-target those users on remnant inventory already in its network.

Still, there is not a straight premium play (such as, well, ContextWeb) in the newly acquired group.

Read Jay’s full entry on the ContextWeb blog:  He also has thoughts on Microsoft’s latest acquisition, adECN.

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