Why AOL spent $405 million on a video-ad start-up


This file handout image provided by Internet provider AOL shows the company logo. (HO/AFP/GETTY IMAGES)
August 7, 2013

AOL announced Wednesday that it dropped $405 million to buy a streaming video start-up, Adap.TV, touting the firm’s system for automating the process of buying and placing digital advertisements.

Sure, it sounds dry but it’s actually one of the biggest bets yet on the notion that video ads are the key to cracking the next stage of Web ads. Ads on video content have already been a focus for Google and Yahoo, and analysts expect that Facebook will soon join suit after the social network introduced 15-second Instagram videos earlier this summer.

Video itself is one of the fastest-growing formats on the Web, so it shouldn’t really be a surprise that ads for video are also a rising area of interest. But video ads still have their problems, particularly when it comes to being able to effectively target them to users in the same way as display ads. There’s also less standardization in video ads right now, though groups such as Interactive Advertising Bureau have been working to set up best practices and guidelines for these ads. (The Washington Post Company is a member of the Interactive Advertising Bureau.)

It’s also a big move for AOL, which has faded considerably since its early days as many users’ main portal on to the Internet. While its dial-up subscription service still makes up a good portion of its revenue — no, really — the company is wisely looking to improve other aspects of its business to make sure it can keep up with the changing pace of the industry.

The acquisition, according to AOL chairman and chief executive Tim Armstrong, will double AOL’s revenue in the video market.

“Three or four years ago, most people probably thought AOL wouldn’t be around at this point,” said Armstrong in an interview with CNBC.

AOL sealed the deal with $322 million in cash and $83 million in stock.

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Hayley Tsukayama covers consumer technology for The Washington Post.
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