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AOL Stands to Benefit from Microsoft’s Advertising Business

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AOL strengths: Digital content and online advertising

In the previous part of the series, we learned that AOL (AOL) and Microsoft (MSFT) have a deal that will see AOL handling Microsoft’s display, mobile, and video ad business from now on.

At the same time, AOL will make Bing its search engine for the next ten years, replacing Google (GOOGL). The deal gives AOL access to some of the most important advertising space in technology, which went untapped by Microsoft through the years. These include ad space on Skype, Xbox, and MSN. MSN covers a wider demographic than AOL, which will enable AOL to offer customized packages for the advertised brands on these platforms.

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Along with the access to additional ad inventory, the deal should help AOL emerge as a leading ad tech firm, with a market presence in the US and the UK. The deal will see AOL employ 1,000 or more Microsoft employees from engineering, sales, and elsewhere, giving AOL access to great talent.

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AOL’s current position in the display ad market

According to a report from eMarketer, and as the above chart illustrates, AOL is currently ranked fifth in the US digital display market. Facebook, Google, Twitter, and Yahoo! are the top four players in this market. A couple of months ago, Verizon (VZ) acquired AOL with a view to using AOL’s resources to strengthen its position in this market.

The Microsoft deal could help AOL gain additional market share and strengthen its position against competitors like Facebook (FB) and Google that dominate the display ad industry. Facebook has made several investments to improve its ad technology. One such investment was the re-launch of Atlas, the ad server it bought from Microsoft.

For diversified exposure to Facebook, you might consider investing in the PowerShares QQQ Trust, Series 1 (QQQ). QQQ invests about 3.7% of its holdings in Facebook.

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