[Update: Edgeio has since launched the auction here, and the company has posted some interesting stats about its recent business here.]

edgeiologo.bmpEdgeio, the company that hoped to revolutionize classified advertising by letting people submit their ads for distribution across on the web, has closed its doors after running out of money.

However, it plans to auction off its assets this week, chief executive Keith Teare tells VentureBeat.

The approach was novel: Edgeio wanted let you bypass the need to post an ad at multiple sites, such Craigslist or newspaper sites — most of which are closed so that the ads get viewed only by people directly visiting those sites. With Edgeio, you simply tagged your online ad with a few key words, and Edgeio would make sure that publishers in its network would showcase those ad that were relevant to their own site. (See our early coverage here and here). Edgeio also listed the ads on its own site, so that people could search for them. “An Adsense for classifieds,” founder and chief executive Keith Teare called it.

However, as Teare explained in a phone call over the weekend, the business needed two sides to work: advertisers and publishers. While Edgeio was able to sign up advertisers in droves — Edgeio boasted 20 million ad units — it wasn’t able to sign up enough publishers to distribute them, he said. Edgeio had purposefully planned to build up its ad base first, and then sought to meet targets for its publisher network second. That second part didn’t come along quickly enough, and when it missed its milestones, investors struggled to justify putting more money into the company. It signed up 2,000 publishers to run ads on their sites, but of those 1,800 were running free classified ad sites, and so revenue wasn’t as robust as Edgeio’s investors hoped (see our coverage of its publisher efforts here).

The closure was first reported by Mike Arrington, a co-founder of Edgeio, on his site Techcrunch. Arrington dropped his work with Edgeio in 2005 to focus on Techcrunch, though remained on the board. Arrington drew lessons from the closure, suggesting the company may have spent money on employees too rapidly, but admitting that ambitious, risky growth is what Silicon Valley is all about.

It didn’t help that the company’s valued itself at a pricey $18 million after taking $6 million round of capital last year. Intel Capital led the round. As it became clear that the company needed to drop the company’s value in order to draw investors this year, Intel stepped up and offered to lead an insider round, but last Wednesday that effort was dropped, for reasons Teare said he isn’t fully aware of.

Teare said he the Web site remains up, because traffic is robust (last month, it saw 8 million page views, from 5 million unique visitors, he said) and it could appeal to the eventual buyer of Edgeio’s assets. He plans an auction this week, and will open bidding at $250,000. He’ll close the auction on Dec 23. He’s still trying to decide where to launch the auction, and eBay is a consideration. He closed the company after a Thursday board meeting, and on Friday he already had interest from people about Edgeio’s assets. Teare said he’s considering a bid on the assets himself, and restarting with his core team. “What I didn’t learn was that is a bad idea,” he said.