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Cox Shells Out $300M to Cash In on Vertical Web Ads

Media giant Cox Enterprises today said that it's spending $300 million to acquire Adify, an online ad technology provider specializing in powering vertical advertising networks.

The purchase snaps up one of the few remaining independent, pure-play online ad companies with significant scale, continuing the process of consolidation that has seen large Web and media companies buying out smaller networks and technology providers as they build up their own advertising divisions.

Adify provides technology enabling media companies to aggregate and sell vertical ad space on their own sites, as well as on behalf of third-parties.

For Cox, whose media holdings comprise newspapers, TV stations, cable, radio and ISP services -- and Web sites associated with each -- the acquisition represents a turning point in the company's online strategy, said Rodney Mayers, the company's assistant vice president of interactive services.

For one thing, the privately held media colossus had not run a network federating the advertising inventory of its sites.

"Every major communications medium that's come along in the last hundred years, we've played in," Mayers told InternetNews.com. "We look at Adify as a way to bring our divisions together.

Additionally, Cox aims to benefit from selling vertical network inventory on other sites that already have a relationship with the smaller firm.

As one of the early ad tech companies to embrace vertical networks, Adify built its business around the snowballing trend of media fragmentation, which has resulted in visitor attention being splintered across niche sites throughout the so-called "long tail" of the Internet.

In a recent research note, IDC analyst Rachel Happe suggested that vertical networks will continue to gain traction as a way to reach a mass audience on the Web, offering a compelling alternative to running ads through Google or Yahoo.

"In part, vertical ad networks give advertisers a replacement for the volume they get with traditional broadcast channels but that simply do not exist on the Web today," Happe wrote. "Because of fragmentation, advertisers need to place ads at hundreds or thousands of sites in order to 'see' as many viewers as they would with TV or print advertisers."

The thinking is that since Adify helps media companies like Cox build ad networks comprised of sites that serve viewers with a common interest, it can better help advertisers reach a qualified audience.

Through an earlier vertical network Adify created with Martha Stewart Living Omnimedia, for instance, a home design company could be assured of getting placement on third-party Web sites serving the precise audience it was trying to reach -- people interested in lifestyle content.

That assurance can enable Adify's networks to charge advertisers a premium rate for placement across scores of niche sites with a single buy.

"For publishers, vertical ad networks give them, in essence, collective bargaining power with the advertisers that more effectively prices the value of their inventory," Happe said. "All inventory is not created equal, and for a small publisher with great content, it is nearly impossible to sell their inventory at premium rates if they go it alone."

Adify has helped create branded ad networks for other major media companies, such as Time Warner, The Washington Post and NBC Universal.

Founded in 2005, Adify has created 108 vertical ad networks to date. Joelle Kaufman, Adify's vice president of media services, said that its existing business relationships will be preserved once the acquisition is completed.

"Quite frankly, nothing changes," Kaufman told InternetNews.com, adding that she expects the corporate support from Cox to accelerate Adify's growth. "I think you're going to see 200 networks by the end of the year."

Mayers said that no Adify employees would be dismissed as a result of the acquisition.

Under the aegis of the Cox TMI division, Adify will operate as a stand-alone company led by co-founder and President Russ Fradin. Adify will retain its headquarters in San Bruno, Calif., and sales offices in New York, Alexandria, Va., London, Berlin and Singapore.

The two companies have been in talks for about a year, and have spent the last three months hammering out the details and making the appropriate filings with government authorities. Mayers said that the deal has already received regulatory approval, and the transaction is expected to close in early May.