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Online advertising’s past, present and future?

AOL was all over the news Monday for its $315 million purchase of the Huffington Post, a move analysts are calling a bold bet on CEO Tim Armstrong’s strategy to transform the dial-up Internet giant into a Web 2.0 (or are we in 3.0?) content king.

More interesting to me is this report in Ad Age Sunday about AOL subsidiary Advertising.com. The Baltimore online advertising company — a cornerstone of the region’s high-tech economy coming out of the Internet bust of 2000 — is said to be in “rapid decline.”

Revenue was down 43 percent in the fourth quarter, Ad Age reported. The decline was attributed by analysts to shifts in the online advertising industry, away from buying and selling ads via an ad network to doing this with an ad exchange.

An ad network features websites and blogs — selected because they fill certain content niches, or traffic levels — with advertising inventory to sell, advertisers looking to buy, and a middleman making it all happen. The ad campaigns are “optimized” across the network to find the best audience with the potential to click on a particular ad — “pay for performance,” as Advertising.com called it.

Many compare an ad exchange, meanwhile, to an electronic stock trading exchange, like the Nasdaq. Publishers, advertisers and websites buy and sell ad space using real-time bidding systems.

Says Ad Age:

“Advertising.com was the leader during the ad network era, but now most of the momentum in the online ad industry is in favor of ad exchanges. These are seen as the most efficient way of buying and selling exposure to audiences. This shift, according to Forrester analyst Joanna O’Connell, is taking money earmarked for performance buys from ad networks like Advertising.com.”

Also, according to this post, ad agencies prefer buying space on ad exchanges.

No word yet on how the Huffington Post acquisition might impact AOL’s online advertising efforts, though founder Arianna Huffington has shown a magical touch when it comes to generating Web traffic, something advertisers like.

“The Huffington Post, which now draws 25 million monthly visitors, has built its popularity by bringing together news from a wide selection of other media outlets, linking to articles and video on everything from politics to style to food,” The Associated Press reported Monday. “It even has a new section on divorce.”

AOL acquired Advertising.com for $435 million in cash in 2004. At the time, AOL was trying to transition from a Web access company known for bombarding consumers with account setup CDs to an online advertising colossus.

Don Kennedy, AOL’s senior vice president of network sales, sounds optimistic in the Ad Age story, just as he sounded last summer in a story detailing Advertising.com’s hiring plans, pegged to a new product launch.

And, in this story from last fall, Kennedy and his management team express confidence that refocusing on what it does best — building an ad network that advertisers want to be part of — will see Advertising.com through to the other side of this latest upheaval online.