• Inside AOL's Adap.tv Acquisition: Making Scale and Personalization Pay

    This morning AOL announced its biggest acquisition to date under CEO Tim Armstrong, buying Adap.tv for $405 million. The deal says volumes about the future of video generally and video advertising in particular. It also underscores the key role that AOL intends to play in helping shape the future.

    To understand the deal, it's important to understand 3 of the most important trends in video today: 1) the shift from linear TV / living room viewing to anytime/anywhere/any device viewing, 2) the democratization of video production and distribution enabled by online delivery and 3) the growing importance of technology/data in the ad buying/selling process. Taken together, these trends portend a future of of massively scaled, yet highly personalized video viewing, monetized through targeted, higher-impact advertising.

    In fact, we are already on the way toward this future. Each month tens of billions of videos are consumed on demand, online and on connected/mobile devices, whenever and wherever viewers choose. Viewers now often opt for video from independent creators who are far from the Hollywood establishment and were unknown just a few years ago (e.g. Machinima, Smosh, Maker, etc.). These content upstarts leverage powerful online distribution platforms to find and build their audiences.  

    Companies like YouTube and Netflix have deservedly garnered a lot of the headlines, but AOL has been playing an increasingly important role in the online video ecosystem as well. Starting with its brilliant acquisition of 5Min in Sept. 2010 (which effectively put AOL on the video map) and then GoViral in Jan. 2011, AOL has rocketed in comScore's monthly list of top online video providers, in June delivering 775 million videos. AOL has ridden the syndication wave 5Min kicked off, learning how to distribute video widely across the net. Taking advantage of the democratization trend in video production, AOL has created a full slate of its own distinctive originals.

    Though AOL has a huge ad sales organization backed with its own technology, the piece that was missing was the abiity to fully capitalize on video's huge scale with a technology/data-driven ad platform. This is what Adap.tv now brings to AOL - the ability leverage programmatic buying/selling to monetize its own video as well as others. Importantly, because AOL itself is a producer and distributor of video, it can experiment with programmatic, learn best practices and establish proof points, all of which will be extremely valuable in evangelizing and driving programmatic throughout the broader video industry.

    That's crucial because programmatic is still in its infancy and has much to prove. Though many are excited about programmatic's improved targeting and efficiency (and therefore higher pricing potential), there's plenty still unknown about how it could affect the overall value of content publishers' inventory. For now, content providers have been treading carefully, experimenting with programmatic either mainly for unsold inventory or with limited "private" markets, as an enhancement to their direct sales model.

    AOL is now clearly stepping out front, becoming programmatic video advertising's lead evangelist. Already on the docket is the Sept. 23rd "Programmatic Upfront," a first attempt at educating the market about programmatic's benefits. With Adap.tv under its roof, the company will certainly play a key role in the event.

    More broadly, AOL's mission will be to explain how the 3 key trends I outlined above - changes in consumption, production and technology - can all be a net positive for the video industry and advertisers in particular in moving beyond traditional TV. It's a lot to bite off, especially for a company that itself is still finding its sea legs after a long slide downward. But if it succeeds and the market follows its lead, AOL could become one of the biggest beneficiaries over the next 5 years.

    Note: here's a short interview with AOL CEO Tim Armstrong on CNBC explaining the Adap.tv deal:

    And at our recent Online Video Ad Summit, we had a session titled "Digging Into Programmatic Video" which is a great primer on all this.