A decade ago, a pair of Baltimore brothers turned technology placing ads within an Internet video game into a $435 million windfall in selling Advertising.com. Ten years later, the same Baltimore-based technology is central to a deal worth 10 times more.
When Verizon announced its bid to buy AOL for $4.4 billion this month, one of the telecommunications giant's executives told investors that advertising technology was the top attraction. And while AOL has significantly expanded its ad business since buying Advertising.com in 2004, it still uses the former startup's core software 4 billion times a day to help advertisers get the most bang for their buck.
That puts AOL's Baltimore operations, with 250 employees, in a prime spot as Verizon taps AOL's large and growing inventory of online videos to go beyond simply delivering media over its fiber-optic cables to producing it and monetizing it.
Scott and John Ferber, the brothers behind Advertising.com, called it a major opportunity for their brainchild.
The Ferbers and other observers said it's also a positive sign for startups that have followed in its footsteps, like Canton mobile advertising firm Millennial Media and Scott Ferber's own Videology, which focuses on video advertising technology. As consumers' attention becomes divided among a growing variety of screens, advertising opportunities are expected to increase and evolve.
"A deal of this nature just indicates that so much of the focus for media companies and communications companies really is on digital content," said Paul Verna, a senior analyst for eMarketer. "I think all of the companies that participate in that space are probably looking at this and saying, 'We've been building our platform for a long time, and this is just another point of everyone saying this is where the future is.'"
A key element of Advertising.com's offerings amid the dot-com boom was a technology known as Adlearn, which advertisers and website publishers use to collect and process data on ad performance. The software's algorithms use data on ad clicks to improve how ads are placed, getting them in front of viewers who advertisers are targeting.
The technology helped the startup expand its ad network to reach 70 percent of all Internet users in the United States by the time AOL came calling.
And since AOL's acquisition of Advertising.com, the company's ad technology scope has broadened. AOL bought video advertising platform Adap.tv and launched an ad platform called One, an online marketplace where advertisers bid to reach specific cross-sections of users.
Verizon executives took notice of AOL's growing advertising technology business and saw it as a potentially key asset as it watches video drive more and more data consumption on its mobile network.
"For us, the principal interest was around the ad tech platform that [AOL CEO] Tim Armstrong and his team have done a really terrific job building," said John Stratton, Verizon's president of operations, at an investors conference after the deal was announced.
The proposed union has gotten positive reviews from observers, including the Ferbers, who both left AOL about two years after it acquired Advertising.com.
"I think the acquisition was great for Verizon," said John Ferber, who is leading Florida-based ad tech startup Bidtellect, in an email. "The Advertising.com team and technology are a major component of the overall AOL technology stack, and Adlearn, the optimization technology that was at the heart of Advertising.com, is used more than ever today."
Scott Ferber said it will be a valuable move as Verizon looks to not only transmit premium video into people's homes and onto their mobile devices, but to use AOL's inventory of online videos to provide some of that content as well as the ad dollars that come with it.
"They don't want to become 'dumb pipes,'" he said. "Advertising technology is just another way to control the distribution of ads, just like being a cable company is controlling the distribution of content."
AOL's video content ranks third behind Google, which owns YouTube, and Facebook in unique desktop video viewers, according to ComScore. Recently, AOL said it planned to produce 3,600 original episodes of video content this year, up from 80 last year. Its programming includes shows headlined by celebrities such as Gwyneth Paltrow, Hank Azaria, Nina Garcia, Rocco DiSpirito and Kevin Nealon.
"Verizon needs to feed the beast with some compelling content, and AOL has some of that," said Peter Csathy, CEO of business advisory firm Manatt Digital Media. "AOL has not been overly successful in this arena, but what it does have is a very strong advertising sales force and ad technology."
The deal also signals a possible surge in business for companies like Videology and Millennial Media, which focus on advertising technology tailored to online video and mobile devices, respectively, Verna said.
"It's validating for what we've been doing for the past nine years," said Matt Gillis, president of Millennial's platform business, which allows advertisers to buy ad space directly in an online exchange.
The deal's emphasis on AOL's One marketplace, which is similar to Millennial's platform business, is particularly encouraging, as Millennial expects the most growth there.
Millennial, which has 200 employees at its Canton headquarters and 600 worldwide, has faced difficult competition from the likes of Facebook, Google and Apple, which can leverage the massive audiences loyal to their apps and mobile app marketplaces into advertising dollars.
Millennial executives are staking their future on the automated mobile ad marketplaces, and on Thursday named a new chief operating officer for the company with a focus on them. Ernie Cormier was previously CEO of Nexage, a Boston company Millennial acquired last year that specialized in real-time bidding technology that helps automate ad sales.
Videology's Scott Ferber acknowledged Verizon's push into advertising also could mean a surge in competition, amid a race to follow the shift in audience from traditional media such as TV and radio to content viewed on tablets and cellphones instead. While the companies compete, they also must cooperate, he said, with ad campaigns spread across disparate devices, ad networks and media.
While Ferber had hinted Videology was headed toward a sale or initial public offering on the stock market last year, he said those plans are on hold while the company jumps on a surge in business opportunities coming from the "cord cutting" phenomenon as more people watch video online rather than on television. Videology has a major presence in Baltimore but moved its headquarters to New York last year.
While mobile devices were once considered the "third screen," after televisions and personal computers, they are quickly becoming the most important for advertisers. And the faster advertisers' marketing budgets reflect that, the better for the industry as a whole, Gillis said.
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The AOL deal shows that transition is happening, and within one of the country's largest traditional telecommunications companies. Verizon is the nation's largest mobile carrier and a major provider of cable TV and Internet services, with 108.6 million wireless customers, 5.7 million FiOS video subscribers and 6.7 million Internet subscribers.
Though companies like Millennial and Videology have been working on mobile and video advertising for years, their industry is still early in its maturation process, Gillis said.
"I think it will help grow the ecosystem," he said of the deal. "Baltimore has become quite the little ad tech hub."
Tribune Newspapers and the Associated Press contributed to this article.