AOL changes form, Phorm changes the rules

Lynda Clarizio is a busy woman. Having helped build Advertising.com, AOL's ad network, into "one of the hottest properties in online advertising," she is now charged with the unenviable job of cleaning up one of the company's messiest divisions, says Emily Steel in The Wall Street Journal.

Time Warner wants to transform AOL from internet service provider into a full-service digital-advertising business – a project on which it has spent about $US1 billion to date, acquiring seven ad-technology firms with expertise in areas ranging from behavioural targeting to video ads.

The next step is to knit them together with Advertising.com – or "Platform A", as AOL calls it. And it's a huge step.

"AOL's future largely hinges on the success of that transformation," says Steel, "which involves aggressively slashing costs, forsaking billions of dollars in overall subscription revenue, and laying off thousands of employees."
The idea behind Platform A is that AOL can be a one-stop shop for placing ads both on AOL's own websites and on the broader web, through its ad networks like Advertising.com, which sell ads on thousands of websites.

So far, though, the company is a long way from that reality – its first six months have been marked by failed sales targets, intra-business tensions, and the recent dismissal of its president, Curt Viebranz.

AOL is fourth among the major web portals – behind Google, Microsoft's MSN and Yahoo – in ad revenue, although the pace of its growth in this area has dropped off.

Even Advertising.com, "a rare bright spot in AOL's business," is facing new pressures, says Steel. A major part of a two-year deal with its biggest advertiser, Apollo Group's University of Phoenix, ended in January.

And while marketers seem willing to spend their ad dollars with Platform A, they can't because the disparate units still operate independently, says Steel.

Which is where Clarizio comes in. AOL executives have picked the 47-year-old ex-lawyer to rescue Platform A, which potentially has the widest reach of any ad network in the country – reaching 90 per cent of the US online audience, according to comScore.

Known for an analytical mind and an ability to delegate, Clarizio led the deal team that acquired Advertising.com in 2004 for $US435 million, which now accounts for nearly a quarter of AOL's revenue and is one of the fastest-growing parts of the company, says Steel.

Ad.com started life as TeknoSurf in 1998. The brainchild of Baltimore brothers Scott and John Ferber, the company's goal was to piece together a network of websites where they would buy ad space, then resell it to advertisers at a premium.

Since then, Clarizio has tried to embrace Ad.com's start-up spirit, distancing it, culturally and physically, from the slow-moving and bureaucratic AOL – the company's HQ has remained in Baltimore, where the various sales teams and engineers are encouraged to work on common goals.

Now, with Platform A – where different ad units call on the same clients, in essence competing for the business – Clarizio hopes to replicate that culture, putting in place one team each for sales, technology, product and operations, marketing and publisher-services, to cut across all the company's different ad units.

But Clarizio's efforts, and those of AOL's competitors, stand to be "rendered useless as a blindfolded spy," with a new league of online marketing businesses taking a more comprehensive approach to targeting ads by gathering data about everything web users do on from their internet service providers, says Saul Hansell in The New York Times.

One of the leaders in this crusade is British company Phorm, which is already working with three ISPs – BT, Carphone Warehouse and Virgin Media. If Phorm and other likeminded companies – NebuAd and FrontPorch, to name two – can track every single click users make, "they will, in theory, have the best ability to find ads that can indulge each user's passion of the moment," says Hansell.

Of course, the path to success will have to negotiate serious concerns about privacy. Phorm has already "spawned a chorus of outrage," despite protestations that its system is legal and respects people's privacy because it doesn't store any personally identifiable information. Users can also chose to opt out of the system entirely.

"This is just the beginning of what is becoming a serious debate,"says Hansell. There is a strong incentive for internet providers to sell data for companies. And cellphone companies soon will face the same choice.

GPS units in phone will be able to keep track of what stores people visit, among many other things. "How much would Honda pay to be able to send ads to people who've been in Toyota dealerships lately?"

AOL ad project, 'Platform A,' plots plan B, Emily Steel, The Wall Street Journal

The mother of all privacy battles, Saul Hansell, The New York Times