February 19, 2008 / 8:40 PM / in 11 years

AOL ex-CEO looks beyond Google, Microsoft & Yahoo

NEW YORK (Reuters) - Former AOL Chief Executive Jonathan Miller has joined online advertising company OpenX as chairman, banking on room in the industry for smaller players even as it consolidates around big deals like Microsoft Corp’s (MSFT.O) bid for Yahoo Inc YHOO.O.

Former AOL Chief Executive Jonathan Miller is shown in this file photo taken at MIT in Cambridge, Massachusetts September 27, 2006. Miller has joined online advertising company OpenX as chairman, banking on room in the industry for smaller players even as it consolidates around big deals like Microsoft Corp's bid for Yahoo Inc. REUTERS/Adam Hunger

Miller, who helped lay the groundwork to transform AOL from a dial-up Internet service to one focused on advertising, takes charge of OpenX as it faces a strengthened competitor in DoubleClick, which will soon be part of Google Inc (GOOG.O).

OpenX, formerly Openads, gives away free software to let Web publishers control when, where and how ads are served on their Web sites. DoubleClick offers a similar service, but charges a fee for its software.

OpenX makes money from charging ad networks to plug into its community of more than 30,000 Web site publishers in more than 100 countries. In January, it test-launched an ad server hosting service that stores ads that can be served to clients when they are needed.

Like other small advertising companies, not to mention Microsoft and Yahoo, OpenX seeks to chip away at a $40 billion Web advertising market now dominated by Google.

Miller sees Microsoft’s $42 billion bid for Yahoo as “a battle among the titans” that will herald more consolidation and a new era for ad companies.

“The titans are doing fine, but there’s a whole new generation. I believe Openads is one of those,” he told Reuters in a phone interview.

The former CEO and chairman of AOL helped restructure the once-reigning king of the online world, paving the way toward Time Warner Inc’s TWX.N plans to split up AOL.

AOL has held exploratory talks to combine with Yahoo or News Corp NWSa.N, sources have said. Miller declined comment on his former company.

Regarding Microsoft’s Yahoo bid, Miller said he expected the deal to be consummated eventually, even though Yahoo Chief Executive Jerry Yang has rejected the software giant’s offer.

“I think Jerry is trying really hard for an alternative. It’s sincere. There were extensive meetings in Palo Alto with News Corp,” Miller said.

Like many Wall Street analysts, he thinks it would be tough for Yahoo to find a deal that can offer as rich a premium to shareholders as Microsoft’s bid. “It’s too complicated to get done,” Miller said of an alternative deal from News Corp.

BIGGER, SMALLER GET BIGGER

The London-based OpenX is backed by financiers including Skype investors Index Ventures and Facebook investor Accel Partners, which have invested about $20.5 million to date.

Its technology has been in development since 1999 as an open source project, where developers can copy, modify and redistribute the software. Openads was formed as an independent company in 2007.

OpenX’s customers include small- and medium-sized companies ranging from TheStreet.com and Digg to Last.fm and TechCrunch, the company said.

In an interview with The Deal, Index Ventures partner Bernard Dalle said the goal was to make “Openads to DoubleClick what MySQL is to Oracle.” Sun Microsystems Inc JAVA.O agreed in January to buy open source database maker MySQL AB for about $1 billion.

He said he was attracted to the company because it accomplished with little funding what big corporations have spent billions achieving — scale.

OpenX serves “a couple of hundred” billion online ads each month, and “multiple trillions” annually, he said, making it one of the top five ad servers in the world.

Miller said he saw big online ad companies such as AOL and Yahoo remaining on the hunt for smaller companies that enable them to become a one-stop shop for marketers. Google, for instance, could be seeking companies that help it better sell advertising on social networks, which was a weak spot in the last quarter, according to company executives.

“What those companies want to be is complete sellers,” he said. “They’ll continue to be buyers to flush out their product lines.”

At the same time, Miller said he expects to see a fragmenting of niche categories of advertising at the other end of the spectrum, so that smaller players become even more specialized. “That’s the tension in the system,” he said.

Since leaving AOL, an investment group formed by Miller and former Fox Interactive Media Chief Ross Levinsohn merged with ComVentures to form in December Velocity Interactive Group, an new investment firm with over $1.5 billion in assets.

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