AOL navigating advertising upheaval with recent Verizon, Millennial Media deals

The interior of AOL Advertising's new office in Baltimore's Brewers Hill neighborhood.
The interior of AOL Advertising's new office in Baltimore's Brewers Hill neighborhood.(Lloyd Fox / Baltimore Sun)

A lot has changed since Advertising.com launched in Baltimore in 2000 — using website banner ads to entice consumers has evolved into tailoring video and mobile marketing "experiences" to people with specific traits and in precise locations.

The upheaval isn't over. And AOL, which bought Advertising.com in 2004 and was in turn acquired by Verizon for $4.4 billion this year, is preparing for it.


Between the Verizon deal and AOL's subsequent purchase of Baltimore mobile advertising firm Millennial Media, AOL has new opportunities to connect advertisers with people watching news and entertainment on their computers, smartphones and even cable TV. A workforce of about 500 people in Baltimore is helping the company figure out just how to take advantage of the new reach.

But the payoff for Verizon is unclear. The telecommunications carrier, with about 111 million mobile customers and nearly 6 million TV subscribers, is gambling on not just delivering programming and advertising via airwaves and cell towers, but on owning that content as well. It's hard for anyone to command much of the market when consumers have so many options for what to watch or read.

AOL leaders in Baltimore said while the circumstances are new, the strategy isn't — with strong technology and creative ideas, they hope to compete against the likes of Facebook, Google and Amazon.

"We've been at the same company, but it's almost like we've worked at five or six companies because the industry has changed so much," said Don Kennedy, AOL's advertiser platforms president, who started as a regional sales vice president at Advertising.com more than a dozen years ago. "A lot of the principles we operated with 15 years ago, they're still 100 percent relevant today. It's just the scope is so much larger."

While AOL is best known for introducing millions of Americans to the Internet around the turn of the century, it has since become more of an Internet media company. It owns news websites The Huffington Post and TechCrunch, and it produces online shows starring Steve Buscemi, Nicole Richie and Zoe Saldana.

Advertising.com's most valuable offering in the early 2000s was technology that allowed advertisers to pay for banner ads based on how often consumers' clicks resulted in sales or sales leads. But in many ways, AOL's Baltimore operations today act like an ad agency.

It recently moved to a large, open office space in the former National Brewery bottling plant in Southeast Baltimore, where some employees build the technology behind ad targeting and placement while others design how the ads look and respond to consumers. Salespeople and business analysts work to help advertisers reach their desired targets.

But while Advertising.com's original focus was on building its own network of ad space spread across the Internet, giving advertisers the ability to tailor where their marketing would appear, AOL is not just selling the ads that appear on its own sites and before its videos.


"It is definitely a healthy component of what our advertisers are buying," said Brit Keller, vice president of platform client services, of ad space tied to AOL's own content. "But we're here to really enable their success holistically."

Of the $1.9 billion in advertising revenue AOL reported in 2014, 45 percent came from sales on non-AOL sites, according to the once-public company's last annual report filed with the Securities and Exchange Commission. Facebook meanwhile collected $11.5 billion in advertising revenue last year, while Google took in $43.7 billion.

As part of Verizon, AOL's reach will grow. Company leaders are in the process of coordinating how to combine their ad space and consumer data with Verizon's and Millennial Media's.

While AOL sold some ads on mobile-friendly websites designed to be viewed on smartphones and tablets, the company did not have much reach into applications — one of Millennial's strengths. And AOL also expects its ad space to eventually reach onto TV screens and mobile device streaming through its union with Verizon, Kennedy said.

John Ferber, who co-founded Advertising.com with his brother, Scott, said he thinks AOL will compete better under Verizon's umbrella. And given the rapid changes in how consumers watch shows and get news, away from TVs and desktop computers and on other devices, it's likely a smart move on Verizon's part.

"After having a few months of the deal's announcement to settle in, personally I increasingly see the wisdom in Verizon's actions and suspect we will see similar moves by their major competitors in the relatively near future," said Ferber, who is now leading Florida-based ad tech startup Bidtellect.


The moves come as advertisers continue to shift away from traditional, static display advertising toward more dynamic ads based on Web browsing history, location or age. Marketers also are embracing what is called "native advertising," also known as advertorials or sponsored content.

Combining AOL's content with Millennial Media's technology could help the companies adapt to both trends, said Greg Hoplamazian, an assistant professor of communication at Loyola University Maryland.

"If you combine the data they each have, I feel like it could lead to more tailored experiences," he said. "AOL is really an advertising company at this point. This will help them do that better."

It's still too soon after both the Verizon and Millennial deals for officials to know what exactly the fruits of the unions will be, Kennedy said. Executives are still integrating the companies.

That includes figuring out how to combine the AOL and Millennial staffs in Baltimore and what to do with their offices. Both companies recently moved into new spaces — Millennial's more than 200 employees are based at the Can Company in Canton, about a mile from AOL's office and 250 employees in Brewers Hill. Kennedy said he hopes the company will retain both spaces and figure out how best to distribute teams between them.

"We've got a little bit of a real estate puzzle on our hands," he said.

In the meantime, the united staff is energized by the prospect of figuring out how to tackle the industry changes ahead, Kennedy and Keller said. Many of the leaders at both AOL and Millennial worked together in Advertising.com's startup days, something they called "surreal."

The deals "make us part of something that is much, much bigger," Keller said. "To be able to be such a big part of what's making this new massive entity successful, I think it's injected a new sense of purpose."