AOL Adds to Its Advertising Makeover

By Zachary A. Goldfarb
Washington Post Staff Writer
Thursday, November 8, 2007

AOL yesterday said it is buying its fourth online advertising company of the year, part of an ongoing effort to transform itself into an Internet advertising concern.

AOL is paying $340 million to buy New York-based Quigo, a company that matches advertising to the content of a Web page. That kind of capability has been central to the success of Google in online advertising.

AOL announced in September that it would move its headquarters to New York from Dulles to be at the center of the country's advertising industry, completing a transition away from the dial-up subscriber base that made AOL a pioneer of the Internet era.

AOL chief executive Randy Falco said the acquisition represents a final piece of the company's new advertising network, called Platform A. It comes after the purchase of Third Screen Media, which specializes in mobile marketing; Adtech, an ad serving system; and Tacoda, a behavioral targeting company.

"We will be able to offer advertisers and publishers the most advanced set of tools, including contextual and behavioral targeting, superior analytics, and access to the largest display network in the marketplace," Falco said.

The transition is still a work in progress. AOL's corporate parent, Time Warner, reported that profit fell by more than half in the third quarter, as gains in AOL's advertising space failed to offset heavy losses in the company's traditional subscriber-based business.

Jeffery L. Bewkes, who was named Monday to replace Richard D. Parsons as Time Warner chief executive, said the company would consider selling subsidiaries to boost shareholder value. He did not elaborate on what might be on the market.

"We will be looking at anything that improves our strategic advantage," Bewkes said. "That'll be true for acquisitions and divestitures."

Overall revenue at AOL declined $745 million in the quarter, or 38 percent, to $1.2 billion. Advertising revenue increased 13 percent, to $61 million, but that failed to offset the $820 million, or 56 percent, decrease in subscription revenue. In addition, advertising growth in recent months has been flat for AOL.

"It takes a while to integrate all these companies," said David Hallerman, an analyst at market research company eMarketer.

Hallerman said the creation of an advertising network -- beyond AOL's own home page and properties -- is crucial for the company to grow.

Overall, Time Warner reported that third-quarter profit declined 53 percent, to $1.09 billion (29 cents a share), from $2.3 billion (57 cents) in the comparable period in 2006. Revenue grew 9 percent, to $11.68 billion.

At the height of the Internet bubble, AOL bought Time Warner, renaming the company AOL Time Warner. But after struggles at AOL and an accounting scandal, the company relegated AOL to subsidiary status and changed its name back to Time Warner.

A few weeks ago, the company fired 2,000 employees at AOL offices globally, including 750 in Dulles.

Time Warner stock closed yesterday at $17.80, down 53 cents on the New York Stock Exchange.

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