AOL Buys Cellphone Ad Company

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By Alan Sipress and Sam Diaz
Washington Post Staff Writers
Wednesday, May 16, 2007

AOL announced yesterday it has bought Third Screen Media, a private company in Boston that specializes in placing ads on mobile phones, two weeks after Microsoft announced a purchase of a similar advertising firm.

Although mobile advertising remains in its infancy, the acquisitions by these two major technology companies underscore the mounting attraction this market holds for advertisers, wireless carriers and computer companies.

So far, most of the marketing is in the form of banner ads displayed on Web sites designed for mobile browsing. But in the future, analysts say, advertisers could send text or graphical ads or even video commercials to cellphone users tailored to their interests and demographics.

During the next four years, the research firm eMarketer expects annual U.S. spending on mobile advertising to increase to $4.76 billion from $903 million. Worldwide spending is expected to reach $13.9 billion at the end of the same period.

John du Pre Gauntt, a senior wireless analyst at eMarketer, said the deal comes as more powerful cellphones are flooding the consumer market, creating opportunities for AOL and other Internet companies to introduce advertising on the devices.

"The fact they acquired Third Screen Media outright indicates how much urgency there is right now for big portals and big ad networks to have a fairly sophisticated, fully baked mobile component," he said. He predicted more deals involving mobile-ad firms in the coming months.

AOL's purchase of Third Screen Media aims to extend the services already offered by AOL's online ad network, Advertising.com, into this emerging market. It is the latest in a recent series of acquisitions by AOL as it tries to revive its flagging fortunes, an effort that has included shuffling its corporate leadership and opening its Internet portal to non-subscribers.

"The acquisition of Third Screen Media gives us a very strong position in the fast-growing mobile space," Randy Falco, chairman and chief executive of AOL, said in a statement.

Neither company disclosed the financial terms of the deal.

Joe Doran, Microsoft's general manager for digital advertising, said the United States is more than a year behind Western Europe in exploiting the mobile market. So Microsoft acquired ScreenTonic, a Paris company Doran says already has the technical expertise and specialized sales force.

"ScreenTonic is making things happen in Europe that you just don't see in the U.S.," he said.

That deal was announced early this month and is pending. No financial details have been provided.

Besides AOL and Microsoft, other major U.S. companies testing the mobile ad market include Verizon Wireless and Sprint, industry analysts say. Yahoo's newly revamped advertising program, called Panama, incorporates a mobile element. Google offers limited text ads on mobile phones in the United States and a dozen other countries.

"Mobile advertising is where advertising on the Web was 10 or 15 years ago," said Roger Entner, senior vice president of the communication sector at IAG Research in New York. "In the early '90s, it wasn't reaching a lot of people."

Americans own more than 200 million cellphones, and many carry them constantly, making these devices a fertile market for advertisers if they can get over a series of technical and psychological hurdles.

Analysts said many consumers are likely to resent receiving ads on their phones unless they are relevant to their needs. Although advertisers could potentially tailor their offerings based on the personal information wireless phone companies keep about their subscribers, carriers and ad agencies have yet to resolve privacy concerns, said Linda Barrabee, a wireless analyst with the Yankee Group.

Another challenge is that cellphones have smaller screens than computers, requiring different ad designs.

"We haven't seen a lot of things come together yet," Barrabee said. "It's the promise of these things that's really appealing."


© 2007 The Washington Post Company

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