By David A. Vise Washington Post Staff Writer
Wednesday, June 30, 2004; Page E01
The head of America Online Inc. said yesterday that he plans to take a hands-off approach to running Advertising.com Inc., the growing, profitable online ad firm that AOL is buying for $435 million.
In an interview, AOL chief executive Jonathan F. Miller compared his desire not to interfere with the company to the strategy pursued by Yahoo Inc. after it bought the Overture Services Inc. search engine last year. After buying Overture, Yahoo's sales grew from increased advertising on its own Web site and from ads generated through Overture's role in providing search services and ad content for hundreds of other companies, including Microsoft Corp.'s MSN.
Miller is optimistic that Advertising.com can achieve similar success. He's hoping it will significantly increase ad sales for Dulles-based America Online, which has considerable ad space waiting to be sold on many areas of its Internet service, and by continuing to increase the business Advertising.com does with hundreds of clients. AOL, he said, should benefit from the firm's broad exposure to the surging Internet ad sector, which exceeded $7 billion last year and is growing at a double-digit rate.
"We are interested in what they are doing because it was working, not because we thought we could do it better or liked the technology," Miller said. "I understand how to manage a business that is part of something but operates stand-alone from my own history with [former employer] USA Interactive. It is a good model."
Miller noted that his philosophy regarding the acquisition is, in some ways, a break with precedent at AOL. Some analysts have criticized the Internet firm in the past for trying to impose America Online's culture on businesses that it bought, or basing deals on the possibility of synergy.
"It is different than in the recent past," Miller said of his plans.
Advertising.com and Overture operate side by side in the hottest segment of online advertising, known as pay-for-performance. Both firms generate revenue based on the number of customers who click on ads, rather than by simply charging fees, as AOL traditionally has done, based on the number of people who may view an ad.
But there are also key differences in the way Advertising.com and Overture present ads to Internet users. Overture, on Yahoo and other Internet sites, generates leads based on what people search for online, the top segment in Internet advertising these days.
Advertising.com, by contrast, acts as a middleman, or broker, by matching hundreds of buyers and sellers of online advertising space. The firm goes further than a typical ad agency would by purchasing ad space from search engines and Web sites, then reselling that space to companies. In that sense, Advertising.com takes on more financial risk than a traditional ad agency, which advises a company on where to advertise but does not own ad space itself.
Major advertisers who rely on Advertising.com include H&R Block Inc., AT&T Wireless Services Inc., Verizon Wireless, MetLife Inc., and Best Western International Inc. Last year, the company reported sales of $132.3 million and profit of $18.7 million.