America Online 2010 Annual Report Download - page 12

Table of Contents
Display advertising revenues are generated through the display of graphical advertisements as well as performance-based advertising. Search and
contextual advertising revenues are generated when a consumer clicks on a text-based ad on their screen. These text-based ads are either generated from a
consumer- initiated search query or generated based on the content of the webpage the consumer is viewing. Agreements for advertising on AOL Properties
typically take the following forms:
• impression-based contracts in which we provide "impressions" (an "impression" is delivered when an advertisement appears in web pages viewed
by users) in exchange for a fixed fee (generally stated as cost-per-thousand impressions);
• time-based contracts in which we provide a minimum number of impressions over a specified time period for a fixed fee; or
• performance-based contracts in which performance is measured in terms of either "click-throughs" (when a user clicks on a company's
advertisement) or other user actions such as product/customer registrations, survey participation, sales leads or product purchases.
We utilize our own proprietary "ad serving technology" (i.e., technology that places advertisements on websites and digital devices) as the primary
vehicle for placements of advertisements on AOL Properties through our subsidiary, ADTECH AG. We also license this ad serving technology to third
parties.
During the third quarter of 2010, we introduced a new advertising format that seeks to enhance the consumer experience by improving the aesthetic
quality, impact and interactivity of online advertising, while also providing solutions for advertisers looking for innovative ways to showcase their products
and services to consumers. In a departure from traditional display advertising, the new format offers an ad space segmented into interactive panels, allowing
advertisers to customize different streams of functionality within one interface, which we believe will increase consumer engagement with online advertising.
We acquired Pictela, Inc. in December 2010 in order to scale our delivery of video, photos and applications, both within the new advertising format and
generally across the AOL Properties. We believe that the Pictela acquisition, combined with the new advertising format, can help us improve our display
advertising product offering.
Google is, except in certain limited circumstances, the exclusive web search provider for AOL Properties. In connection with these search services,
Google provides us with a share of the revenue generated through paid text-based search advertising and contextual advertising on AOL Properties. For the
year ended December 31, 2010, advertising revenues associated with the Google relationship (substantially all of which were search and contextual revenues
generated on AOL Properties) were $398.4 million. In addition, we sell search-based keyword advertising directly to advertisers on AOL Properties through
the use of a white-labeled, modified version of Google's advertising platform, for which we provide a share of the revenue generated through such sales to
Google. We have extended the search partnership with Google for an additional five-year period until December 31, 2015. The majority of the revised terms
in these agreements took effect on January 1, 2011. As part of the extension of the relationship, the Company and Google entered into a binding
Memorandum of Understanding pursuant to which the parties will work together to expand the alliance to include the provision of mobile search and mobile
search advertising services to AOL. AOL and Google also entered into a video partnership that will feature AOL's video content on YouTube, which became
effective on August 27, 2010. See "Item 1A—Risk Factors—Risks Relating to Our Business—We are dependent on a third-party search provider".
For the years ended December 31, 2010, 2009 and 2008, our advertising revenues on AOL Properties were $948.5 million, $1,213.7 million and
$1,450.4 million, respectively.
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