) started out as a big player in the dial-up Internet space but
transitioned into a company that relies on content and ads to drive
revenues, as subscribers shifted to broadband Internet services.
AOL has adopted a barbell sales strategy that offers
programmatic advertising on one end and deep marketing services or
premium buys on the other. It is ramping up its real-time bidding
platform (RTB) through in-house development and acquisition.
Additionally, to address premium ads, AOL has launched a host of
new ad formats to lure advertisers to its properties. In this
article, we will look at AOL's ad strategy.
See our complete analysis of AOL here
Online Ad Sales Explained
Before the advent of programmatic buying, digital content
publishers sold ads directly to advertisers through ad networks.
The ad inventory listed by a publisher was matched to advertisers
based on their target preferences (which includes demographics,
geographic, contextual preferences etc) for a predefined fixed or
static price. If an agreement between an ad publisher and
advertiser was not reached, the network moved the inventory to the
next advertiser in line. However, this mechanism is inefficient and
often fails to match ad inventory with a prospective advertiser. As
a result, publishers lose out on revenue and advertisers lose out
on getting cheap ad placements.
Over the past few years publishers have been increasingly
adopting ad-exchange mechanism that uses real-time bidding (RTB)
platforms. An RTB or programmatic platform is a method of selling
and buying online display ads in real time. RTB aggregates the
impression slots offered across multiple ad networks and matches
them (based on the advertisers target, budget and placement
requirements) with the most appropriate ads. Additionally, an RTB
employs dynamic pricing auction method which allows the publisher
to supply his impression to the highest bidder at any given
instant. This results in advantages such as better cost efficiency,
higher performance and greater granularity with targeting and
measuring an ad's effectiveness.
AOL's Display Ads Strategy
According to eMarketer, advertisers spent $2 billion on RTB in
2012 and will increase to $3.34 billion in 2013. eMarketer also
expects that real-time bidding will account for more than 29% of
all digital display spending by 2017.
AOL ad formats such as Project Devil and Digital Billboard
continue to gain traction with advertisers for premium buys.
However, AOL is aggressively developing its RTB platform as well.
We believe that RTB will be a key growth driver for AOL as it
efficiently matching impressions with relevant display ads that in
turn boosts revenues. While the company acquired adapt.tv to
bolster its demand side platform (DSP) for video ads, its supply
side platform (
) ADTECH Marketplace continues to support publishers by effective
management of unused ad inventory.
We think AOL is well positioned to capture a bigger chunk of RTB
spending in the future by leveraging its DSP and SSP. If AOL
manages to capture 10% of this spending in the U.S. by 2017, its
display ads revenue can double. Additionally, we also expect that
AOL's RPM will increase due to better management for unused ad
inventory and better sales to advertisers. Currently, we project
that RPM will grow to $3.60 by the end of our forecast period. If
RPM increases to $5 instead, our price estimate gains an additional
We currently have a
$27 price estimate for AOL
, which is approximately 20% below the current market price.
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