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AOL to Buy Ad Firm That Monitors Web Use

By Sam Diaz
Washington Post Staff Writer
Wednesday, July 25, 2007

AOL made headlines a year ago when it scrapped its subscription model and shifted its focus to the lucrative online advertising business.

Since then, the Dulles company has been positioning itself, largely through acquisitions of smaller companies, to challenge Google, Yahoo and Microsoft for a piece of the fast-growing market of Internet advertising.

Yesterday, the company put another piece of its puzzle into place when it announced an agreement to acquire Tacoda, a New York advertising network that monitors consumers' online behavior, such as Web sites they visit, to determine their interests. Financial terms were not disclosed.

The deal, which comes only a few weeks after Yahoo said it was launching a system based on online consumer behavior, follows AOL's May acquisition of Third Screen Media, a Boston advertising network for mobile devices. The same month, AOL acquired controlling interest in Adtech, a German company known for easy-to-use tools designed to help Web site publishers manage their advertising. Last year, it also bought District-based Lightningcast, which specialized in video ads.

"The whole issue with the Web today is relevance," said Ron Grant, AOL's president and chief operating officer. "We're making sure we're putting relevant content and relevant ads in front of consumers."

Tacoda's technology fits under the umbrella of AOL's Advertising.com, which is the hub of AOL's ad network and the place where advertisers go to fine-tune how their dollars will be spent. Like other Internet firms, AOL has rapidly shifted its focus to selling more ads across the Internet -- not just on sites owned by AOL, such as Mapquest.com.

Increasingly, advertisers expect more-specialized tools to target specific users who might come across their ads, Grant said. Behavioral targeting, largely based on tracking the sites that users visit, allows the ad network to draw conclusions. For example, if a user has been visiting digital camera review sites and Web sites where cameras are sold, the network assumes that person is likely looking to buy a digital camera.

Andrew Frank, research vice president of Gartner, noted that behavioral targeting alone hasn't been enough to lure large brand-name advertisers because it's relatively new and doesn't have enough data to make it useful.

"Publishers and advertisers don't understand it very well," he said. "Plus, it's got these clouds of privacy questions around it as well."

Privacy advocates have been wary of technology that monitors consumers' online habits. While Tacoda does not know the identities of Internet users, AOL can identify members who log on to AOL.com. AOL said nonmembers can be tracked by their Internet protocol addresses, or the series of numbers that identify the company, school, organization or service through which a computer reaches the Internet. AOL said it keeps data about consumers for a limited time but did not elaborate.

Frank said he thinks behavioral targeting could become more powerful if it's linked with online search data, something that AOL, Google, Yahoo and Microsoft could deliver. That would allow for deeper drilling into surfing and buying habits. That, in turn, could put an ad in front of a user who might be compelled to make a purchase.

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