By Yi-Wyn Yen
PHOENIX – In the Broadway hit “Spamalot,” a group of knights cart off a man who sings, “I am not dead yet.” AOL chief executive Randy Falco spent some time singing a similar tune Tuesday at the Interactive Advertising Bureau conference, Ecosystem 2.0.
Falco was defending AOL’s digital ad business after a Microsoft executive marginalized the company’s relevance in the ultra competitive market a day earlier. Brian McAndrews, the senior vice president who leads Microsoft’s advertising efforts, said the online ad market has only room for two serious competitors, Microsoft (MSFT) and Google (GOOG).
“Microsoft and Google can ignore us and leave us off the charts, but they will do it at their own peril,” Falco said.
Microsoft has been vocal about its plans to catch up with Google, which dominates the search advertising business. Microsoft is banking that a $44.6 billion hostile takeover of Yahoo (YHOO) will do the trick. Meanwhile, AOL (TWX), which had been in talks with Yahoo after the company rejected Microsoft’s bid two weeks ago, is more than happy to sit on the sidelines and watch the tech giants duke it out. (AOL, Fortune and CNNMoney.com share a corporate parent, Time Warner.)
“What I’m hoping is that [Microsoft and Google] beat each other’s brains out in search and leave the display side open to us,” Falco said. “I think this deal is about search. I think it’s a mistake. Napoleon said to never interrupt your enemies when they’re making a mistake.”
He added: “The people who go out and create solutions for partners will win out this game. You can accuse me of whistling past the graveyard, but I think we’re competitively well-positioned.”
An AOL executive, who requested anonymity, confirmed to Fortune that the company talked with Yahoo but said it never had any serious intention to bid or enter into a partnership with the Internet portal.
Philosophically, the two are at opposite ends of the spectrum. Yahoo, which said Monday that it was building an all-purpose ad platform called Apex to integrate all types of digital advertising (including paid search), believes that technology drives the ad business. AOL is focused on keeping it old school by fostering its relationships with its advertisers and 8,000 publishers through its ad network, Platform A.
“The best technology means nothing unless you have the best people with a customer-centric focus, and that’s what we do with AOL,” Falco said. “We work hard to find solutions for our publishers because this business is about the people.”
AOL has been trying to transform its image from an increasingly irrelevant dialup Internet service to a top-tier online ad company. AOL’s strategy is to build the ad empire around graphical, or display, advertising. It already owns one of the largest arbitrage networks, advertising.com. Last year, it spent about $600 million to snap up behavioral targeting firm Tacoda and ad network Quigo.
AOL has a revenue-sharing deal with Google to deliver search results. The search game may be over, but for AOL, the display ad business is far from dead.
