AOL's big bet that advertisers will get a bit (but not a lot) smarter

So AOL buys HuffPo for $315m, valuing (as Chris Tolles points out) their 26m ComScore users at $12 each. We're not (yet) in the Broadcast.com league but it's still an excitingly bubbly valuation at ten times 2010 revenues, five times even management's own 2011 revenue forecast and god knows what multiple of the presumably nominal profitability they claim the site achieved in the fifth year since it launched.

AOL is betting the farm on monetising professionally-created content via display advertising. That's a big bet, but of course for AOL it's not a new one - acquiring HuffPo is simply a continuation of the strategy that AOL has been pursuing since it parted company with Time Warner. Engadget, Politics Daily, Techcrunch and especially Patch are all long bets on paying writers and then serving display ads over the results, and if that's the strategy this is a smart push for more of the same.

Through a combination of buy and build AOL has therefore spent the better part of half a billion dollars to build a content network that still leaves it in third place behind Yahoo and MSN, and like everyone else way behind Facebook with 25% of all display ad impressions. Of course the company has to do, and be, something as the revenues and traffic from its legacy access business dry up, but its positioning now leaves AOL hoping for a very specific and limited development of the US ad market.

For years now we have talked about the disconnect between media time and media spend - how the speed with which we reallocated our attention online has left the allocation of ad spending way behind. In the UK, for example, it looks probable that 2011 will be the year that time spent online finally overtakes time spent watching TV (last year was 24/26), and yet online spend and online cost per attention continues to lag behind our behaviour, leaving approximately $50bn pa in potential online advertising on the table.

AOL's content network - which, combined with its own ad network, email/portal traffic and other digital assets, means it just about scrapes into the first rank of suppliers for digital display inventory - makes sense if they're assuming advertisers will get smart enough to move more of that spend to digital, but only smart enough to treat digital as just another mass-medium. The language of the press release makes it obvious how they're thinking about these assets -"the new combined media group will reach 117 million Americans, 270 million globally".

We're big, we reach a lot of influential people, we're the new TV. It works if you believe advertisers will get smart enough to move more of their money online, but not smart enough to understand why they're doing it. Digital isn't about mass audiences and reach, it isn't about 117 million Americans bouncing off one of your thousands of network sites once a month. It's about targeting and deeper relationships and advertising that doesn't just reach a mass audience but actually, measurably works to connect with customers, sell products and improve the image of the brand. Maybe advertisers will only get half of the way there. But it's a strange thing to bet a company on.

(Photo from AthenaLeTrelle on Flickr)