Tacoda, the well-known ad network company which offers relatively high rates to publishers to place advertisements automatically on their Web pages, is officially shutting down.

The entity, recently bought by AOL, is instead being folded into AOL’s Ad.com/Platform A division. This is a shocking move for some, because Ad.com doesn’t target much at all, and offers ads of $1 or less per a thousand views — and is generally considered a “bottom-feeder” by some in the industry. The company apparently hasn’t communicated very well about what sort of targeting technology Ad.com will offer to the affected customers (see memo below).

[Update: We found it difficult Friday to reach someone at AOL for comment, but PaidContent’s David Kaplan has reached Platform A’s Lynda Clarizo, and she says Ad.com will be using Tacoda’s technology. She says Ad.com was targeting the same way Tacoda was, and thus the implication is that Ad.com was paying as much. But that’s not what we’ve heard from sources. Only time will tell.]

Tacoda became popular because it offered an industry high rate of $2 to $6 per a thousand views (CPM). True, other advertisers often offer far more than that, but not without selling to a Web publisher’s more expensive display ad space — and requiring interactions with live sales people. Tacoda, all automated, paid rates well above other comparable “remnant” networks. It did so by working hard to target behavior of Web users. By knowing what pages users visited online, Tacoda’s technology allowed advertisers to fork out more money, in the knowledge that their ads were reaching the right people.

Valueclick, another player in the area that is similar to Ad.com, announced anemic flat growth yesterday, its shares fell by up to 11 percent as it became clear customers are spending less. Aside from the economic downturn, the pressure may also be due to the realization that low-end ad networks don’t offer a very differentiated product anymore.

The shuttering of Tacoda comes after another move by AOL that raised eyebrows: AOL bought Bebo $850 million, a price many observers considered to be twice or three times what it was really worth, and then let the founder Michael Birch leave — though some considered him one of the company’s crown jewels.

The action is also significant because AOL has been the second largest online advertising player, behind Google.

From what we hear, the Tacoda transition isn’t going very smoothly. Only 35 employees remain at Tacoda’s division, down from 97, apparently because some sales people were unhappy about moving to Ad.com. A letter sent out by Tacoda today suggests publishers will have to sign new contracts, and will have to change tags on their web pages. Letter below.

VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Learn more about membership.