Setting Its Sights On Content Personalization, AOL To Acquire Gravity For $90.7M

AOL is announcing that it has reached a deal to acquire content personalization startup Gravity for an initial $83 million, with another $7.7 million paid out over the next two years.

Gravity works with online publishers and brands to tailor their content based on the activity of each visitor. This can take the form of “Recommended For You” or “What You Missed”-type widgets, which is how we implemented Gravity on the TechCrunch site. But co-founder and CEO Amit Kapur (who, like the other Gravity founders, was a former MySpace executive) has laid out a broader vision in the past, suggesting that this personalization is “the future of content.”

The press release says the acquisition will help AOL deliver personalized content, both on the editorial and advertising side. In addition, Gravity’s executives are joining the company.

In an interview with Recode’s Kara Swisher, AOL CEO Tim Armstrong (you’d think he’d want to give us a heads up about this, since AOL owns TechCrunch, but apparently not) said, “We think we can get a clearer signal with content with personalization to improve our results and better monetize what we offer.”

Gravity was founded in 2009 but didn’t “fully launch” its platform until a year ago, something that Kapur attributed at the time to the company’s “methodical” approach to building something “big and disruptive.” It raised more than $20 million in funding from investors including Redpoint Ventures, August Capital, and Upfront Ventures.

Thanks to the reach of its publishers, Gravity says it has has personalized more than 1 billion pageviews per month. It also says it increases engagement by 240 percent compared to non-personalized sites.

Here’s the internal memo that TechCrunch just received as part of AOL’s Brand Group:

Brand Group Teammates:

As I think most of you know, I believe that we have the opportunity and responsibility to pair our users with our content more precisely. Today, we are showing every user a unique, targeted set of advertisements, while we are still showing every user the same page of content. As publishers, we need to transform the user experience by dynamically delivering every user a unique page that takes into account who they are and what they’re specific interests demand. Because of your never-ending efforts, AOL boasts one of the world’s largest, evolving libraries of original, premium content and instead of continuing to present every user with the same content assets, we need to take advantage of the depth and breadth of our content and get the right information in front of the right eyes, dynamically. In this paradigm, for example, is able to target a soon-to-be married woman living in Dallas with a completely custom-painted homepage (landing page) that includes wedding dress content from StyleList, wedding cake ideas from Kitchen Daily, weather and news from HuffPo Dallas and, perhaps, info about the very stocks in her portfolio on Daily Finance.

Over the past four months, our team has analyzed and met with numerous personalization (and different optimization) technology companies, including the leading player Gravity. While evaluating a network-wide commercial deal with Gravity, we determined that owning the technology that powers personalization on our content pages is imperative as we didn’t want to become dependent on a third party’s ability to provide this functionality for an important consumer facing, core aspect of our business. We also realized that by owning this tech, AOL could own a key component of the web’s plumbing and offer it to our network of publishing partners. Customers like WebMD and ESPN already use Gravity. In short, we learned that Gravity’s interest graph tech would be an essential contributing element for all of AOL’s products moving forward.

With all of this in mind, I am really happy about this acquisition and I hope you will join me and welcoming Amit Kapur (CEO and co-founder, copied here) to our leadership team.

Amit, his team and I will be working our way around to discuss how Gravity can optimize your business units with all of you over the next few weeks. You are, of course, welcome to reach out to Amit directly. Commons, Amit and the corp dev team are working on a formal evolving implementation plan and will keep you posted.

Better every day,

PS: Thanks to Lemmon, Susan, John Frelinghuysen, Bei Huang, Maureen Sullivan, James Commons, Matt Garber and most definitely Sarah Saxe for the support and heavy lifting on this (most of which happened smack dab in the middle of the holidays).

AOL says it’s also acquiring $12 million in net operating losses, which will result in a $5 million cash tax benefit. The deal is expected to close in the first quarter of this year.