Why AOL’s 'Platform A' May Not Make the Grade

Back in September, AOL (TWX) today announced a series of changes it was making to position the company as the world’s largest and most effective advertising network, building on its industry-leading Advertising.com network and the recent acquisitions of TACODA, Third Screen Media, Lightningcast, Adtech, Quigo and Bebo, collectively purchased for what must be close to $2 billion dollars. The realignment marked the final stage in AOL's transition from an access business to a global, ad-supported Web company.

The new entity, called Platform A, says it is offering advertisers access to the most sophisticated targeting and measurement tools available in the marketplace across Platform A's unmatched network of third-party sites, as well as AOL's owned and operated sites. Platform A is said to already reach more than 90% of the domestic online audience, according to comScore Media Metrix. Platform A builds on the success of Advertising.com, which operates the largest third-party display network, and integrates behavioral targeting leader TACODA, Third Screen Media, which operates the largest mobile media network, market leading video ad serving platform Lightningcast, and ADTECH's global ad serving platform.

In recent weeks, the company announced plans deploy Tacoda’s technology across the whole Platform A network. In an article written by Fred Aun published at Clickz.com titled “AOL's Platform A Integrates Tacoda Across Network” Platform A President Lynda Clarizio, said players in the online ad industry are now insisting on scale and precision with consumer targeting options. She said the use of Tacoda's BT technology will help Platform A satisfy that demand.

"We'll replace all of Advertising.com's existing behavioral technology with Tacoda's behavioral product," said Clarizio. For re-targeting campaigns, Platform A will continue using Advertising.com Advertiser Leadback technology and migrate Tacoda Encore clients to the Advertiser Leadback platform, she explained. Clarizio said the integration gives Tacoda the full benefit of reaching all of Platform A's 180 million unique visitors, representing 91 percent of the U.S. Internet audience. She said she considers Tacoda to be the industry's best behavioral targeting technology. I guess that makes sense, they did pay David Morgan and his team $275 million after all for it.

It all sounds great doesn’t it? Ah yes, but Ms. Clarizio failed to mention a potential large problem that could literally prove to be a show stopper. Tacoda is being sued for patent infringement by a company who appears to be the rightful owner of the “patented” technology she herself refers to as “the industry's best behavioral targeting technology”.

That’s right! It appears Tacoda, said to be acquired solely for their technology and not their people, owns not a single issued patent on the technology they sold to AOL! They must have seen the value in patenting it since it is “patent pending” but you obviously can’t obtain a patent for technology someone else patented many years ago. This ‘already patented” technology is the exact same technology that they intend to make a cornerstone of Platform A, allowing them to monetize AOL’s $2 billion dollar plus investment. I know, say it isn’t so!

It get’s even better, according to Modavox’s (MDVX.OB) just released filings, they just sent a Cease and Desist letter to AOL, LLC President & Chief Operating Officer regarding Ms. Clarizio’s exact stated plans to utilize Tacoda across all of Platform A.

On May 16, 2008, Modavox served a Cease and Desist letter to the AOL, LLC President & Chief Operating Officer. We advised of the possible expansion of our current action against Tacoda to include AOL, LLC if they intend to utilize the Tacoda Advertising process throughout the AOL, LLC "Platform A" as described in recent publications and news releases. We have informed AOL, LLC that a non-exclusive license to the patents-in-suit are available; however in the absence of a license AOL, LLC's published intention to make the Tacoda solution available across the Platform-A Network will in fact infringe upon well identified patents. As of June 1, 2008, the matter remains unresolved.

So I ask a couple very simple questions of Ms. Clarizio and Mr. Falco. In light of the importance of Platform A to AOL’s future, the fact that at least a couple billion dollars has likely been spent in it’s formation, the fact there have been suggestions it will be spun off into it’s own publicly traded company, and the fact Platform A is clearly predicated and reliant on Tacoda’s behavioral targeting technology to monetize your audiences through online advertising, what if you lose this lawsuit? What if one of your competitors buys this small company and leverages it against you?

Until this important issue is resolved, it appears AOL’s Platform A may not make the grade.

Comments

[Terry S]

Very very interesting. It will be hard for them to even take it public with such a material lawsuit pending. No underwriter would put their name on the prospectus until it was resolved. It's amazing to me they are dumb enough to role Tacoda across all of Platform A without resolving this issue? You make a great point, what if they lose? then what? None of it surprises me, AOL has not been known for making the best of decisions over recent years.

[User 212268]

Well, not sure if this is true or not and the saying innocent until proven guilty still means something...right?

Besides, Advertising.com had developed their own behavioral targeting inhouse...and combined I think I read...so maybe that is the difference..or maybe plan B.

[eddiemurphy]

I think the lawsuit is a non issue, many web companies have such matters pending and they rarely come to much.

Of much greater importance is who is going to get this up and running on Ad.com's platform given that the people who know most about how to implement and run the technology have left. Tacoda's main strength was smoke and mirrors marketting of what is in reality average technology. This is currently the case for all of the major behavioural firms.

[Terry S]

I generally agree with you but I think the lawsuit is a pretty big concern. I've spent some time looking at this company's patents and they are pretty impressive from my perspective having researched many patents in the past. It looks like Tacoda was actually being sued before AOL bought them and without AOL buying them, Tacoda would have been forced to deal with it with their limited resources. Morgan was saved by the "AOL" bell so to speak. I think the other major behavioral firms could face the same issue with this little companies patents, especially if a larger player acquires them. To date, they obviously haven't had the resources to go after all of them. Blue Lithium acquired by Yahoo is another clear infringer along with what would appear to be many others. It's why I think one of the large guys would be well served to snap up this small company and use their patent portfolio as a weapon against the competition. The licensing opportunities alone are tremendous. Again, I would generally not be concerned about lawsuits in the normal course of business. However, this lawsuit is dealing with the fundamental core technology being deployed across all of platform A, it's absolutely critical as stated in their own words. Clarizio stated they acquired Tacoda for the technology and not their people so it contradicts your thoughts. I tend to agree more with you frankly.

[Terry S]

Aol acquires a company being sued for stealing someone elses patented technology and pays $275 million for it and then fires all that company's best minds! Just one more dumb mistake in a list of many. AOL can't find it own way out of a paper bag! They are so stupid they are probably going to sit idle till another competitor just buys this company and really cause themselves a major problem! Good lord, imagine if Google gets their hands on these patents!

[Terry S]

I guess AOl could always go back to Advertisng.com's platform if they lose but they must be changing to Tacoda from Advertising.com for some reason? I can't believe they bought the company for its technology and paid that much and they don't even own a patent on it? I guess AOl didn't get into the mess they are in by making good strategic decisions. It's time Falco and company get it right or they will go the way of the dinasour.