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Table of Contents
generate advertising revenues on the Third Party Network, we historically incurred higher traffic acquisition costs (TAC) as compared to advertising on AOL
Properties. We currently market our offerings to publishers on the Third Party Network under the brand "Advertising.com."
We launched the Advertising.com Group during the second quarter of 2011. The Advertising.com Group's focus is to position AOL as a global partner
for leading publishers, advertisers and agencies seeking to maximize the value of their online brands through premium formats, video, content, networks,
platforms and monetization. The Advertising.com Group includes Advertising.com, ADTECH, AOL Video, goviral, Pictela, Content Solutions
(including StudioNow, Inc. ("StudioNow") and SEED), 5Min and Sponsored Listings. During 2010, we launched a new advertising format, "Project Devil,"
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. We acquired Pictela in December 2010 in order to
scale our delivery of video, photos and applications, both within the new advertising format and generally across AOL Properties. We believe that the Pictela
acquisition, combined with Project Devil, will help us improve our display advertising product offering and provide new premium format systems under the
Advertising.com Group. Our acquisition of goviral during the first quarter of 2011, provides us with branded online video for media agencies, creative
agencies and content producers. Additionally, our acquisition of 5Min in the third quarter of 2010 provides us with video content and a syndication platform
for web-based videos that enhances our ability to distribute content. We aim to increase the use of video on our sites, including the use of video on our
branded properties and digital devices.
In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from publishers and utilize proprietary
optimization, targeting and delivery technology to best match advertisers with available advertising inventory. A significant portion of our revenues on the
Third Party Network is generated from the advertising inventory acquired from a limited number of publishers.
The Third Party Network includes a display advertising interface that gives advertisers the ability to target and control the delivery of their
advertisements and provides advertisers and agencies with relevant display analytics and measurement tools. We intend to utilize self-service systems and
tools in order to expand our relationships with advertisers. For our publishers, inclusion in the Third Party Network offers a comprehensive set of tools and
technologies to manage and maximize their return. We aim to develop our current relationships with publishers and advertisers and continue to expand the
number of publishers and advertisers we serve through the products and services we offer on the Third Party Network.
We utilize AdLearn, a proprietary scheduling, optimization and delivery technology that employs a set of complex mathematical algorithms that seek to
optimize advertisement placements across the Third Party Network and the available inventory on AOL Properties. This optimization is based on expected
user response, which is derived from previous user response plus factors such as user segmentation, creative performance and site performance. AdLearn
allows performance to be analyzed quickly and advertisement placement to be frequently optimized based on specific objectives, including click-through rate,
conversion rate, sales volume and other metrics. We also offer advertisers the ability to target advertisements to specific users using technology that utilizes
non-personally identifiable information, such as geographic location, previous exposure to certain advertisements or user behavior online.
During the fourth quarter of 2011, the Company, Yahoo! Inc. and Microsoft Corporation entered into nonexclusive agreements to allow advertising
networks operated by each of the companies to offer each other's premium nonreserved online display inventory to their respective customers. We believe that
this partnership will offer advertisers and agencies the efficiency of buying premium display at scale to reach customers and audiences.
For the years ended December 31, 2011, 2010 and 2009, our advertising revenues on the Third Party Network were $383.7 million, $343.7 million and
$529.4 million, respectively.
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