AOL Plays Catch-Up on Ads
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Move to New York, Acquisitions Show Firm’s New Vision
Wednesday, September 19, 2007
AOL’s move to New York City is based largely on the hope that by getting closer to advertisers, it will secure a bigger share of an online advertising market that’s dominated by its rivals.
It’s the latest in a series of actions that the company has taken to try to reinvent itself from its old dial-up Internet business. While AOL has grabbed an 8 percent market share in the $16.8 billion U.S. online advertising market, according to Jupiter Research, its growth has slowed in recent months. And some analysts say AOL faces a huge task in trying to wrest business from powerhouses such as Google.
Google has 25 percent of the online ad market and is trying to buy another industry leader, DoubleClick. Yahoo, with 15 percent, has bought Right Media and is buying BlueLithium. Microsoft, which has 7 percent of the market, has bought aQuantive and ScreenTonic.
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As it seeks a bigger footprint in the industry, AOL is looking to serve ads not only on its properties such as its portal, AOL.com, and gossip site, TMZ.com but also across most of the Web on videos, blogs, social-networking sites, mobile devices and elsewhere.
The company, which has been buying online-ad companies over the past two years, announced Monday that it is moving its headquarters from Dulles to New York to be at the nucleus of the advertising world and would merge the advertising companies into a new entity called Platform A, which it said would be the largest advertising network in the world.
AOL’s primary advertising subsidiary, Advertising.com, reaches 90 percent of the monthly U.S. Internet viewership, according to ComScore, of Reston.
“They’re a content site, whether they create or license it, and that’s one source of their revenue,” said David Hallerman, an analyst with eMarketer, an online advertising market research firm. “But now they have a means for getting money from advertisers who want to advertise across multiple sites on networks, and that’s going to be a growing area.”
In August, AOL’s new strategy showed some weakness. It reported that advertising growth from March through June was 16 percent, compared with 40 percent in the first three months of the year.
Some analysts blamed the slowdown on two factors — changes to AOL.com that made advertisers more cautious and the proliferating number of places online, such as blogs and videos, for companies to advertise, many of them significantly cheaper than the sites of big media companies.
In announcing Platform A, AOL chief executive and chairman Randy Falco acknowledged as much.
“With the increasing fragmentation of online audiences, the best way to serve advertisers is to enable them to harness massive advertising networks that reach across the entire Internet, not just our AOL Web sites,” he said.
One of the ad companies AOL recently bought, Lightningcast, caters to video, while another, Third Screen Media, targets the mobile market.
In the 1990s, AOL was the dominant player in online advertising. That’s when it was providing dial-up Internet access to tens of millions of people, many of whom accessed the Internet through AOL’s proprietary software.
With the rise of Yahoo and Google — which offered advertising based on search results at a far lower cost than banner and display ads that appeared on AOL did — AOL struggled to compete. Meanwhile, its subscriber base declined as users migrated to cable and telephone companies for Internet service.
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America Online
In April 2007, AOL President and Chief Operating Officer Ron Grant addressed the media in Bangalore, India. (FILE PHOTO) (Dibyangshu Sarkar/AFP/Getty Images)
AOL Chairman and CEO Randy Falco speaks during the Reuters Global Technology, Media and Telecoms Summit in New York on May 16, 2007. (FILE PHOTO) (Keith Bedford/Reuters)
AOL Chairman and CEO Jonathan Miller along with AOL Vice Chairman Ted Leonsis -- who is the majority owner of the Washington Capitals, Washington Mystics and minority owner of the Wizards -- met with The Washington Post to discuss AOL's new business model in 2006. (FILE PHOTO) (Leslie Walker/Washington Post)
An employee walks through one of the doors inside the lobby of AOL headquarters in November 2004. (FILE PHOTO) (Joe Raedle/Getty Images)
This 2006 photo shows the annual company volunteer day at AOL headquarters in Dulles. AOL employees packaged more than 2,000 bags for The Red Cross, Loudoun Family Services, Loudoun Literacy Council, and Emmaus Services for the Aging in D. C. (FILE PHOTO) (Tracy A. Woodward)
YouthAIDS Global Ambassador Ashley Judd spoke to more than 300 America Online employees at the company's headquarters in 2005 to promote HIV/AIDS education and prevention. (FILE PHOTO) (Tim Nguyen/AOL)
AOL and Advertising.com executives gather at AOL headquarters in 2004 to talk to the media. The companies announced that AOL had agreed to pay $435 million to acquire Advertising.com, a provider of interactive marketing services. In photo, left to right: Advertising.com CEO Scott Ferber; Advertising.com Chief Product Officer John Ferber; AOL Vice Chairman Ted Leonsis; AOL Chairman and CEO Jonathan Miller. (FILE PHOTO) (Rick Kozack for AOL)
The photo for this illustration was taken in New York in 2006. Here, a collection of compact disks containing promotional software for AOL's Internet service is shown. (FILE PHOTO) (Mark Lennihan/Associated Press)
In 2003, then-Virginia Gov. Mark Warner speaks during gathering at AOL headquarters in Dulles prior to the ceremonial signing of an anti-spam bill. Shown listening to Warner is, from left: AOL executive Ted Leonsis; president of the Northern Virginia Technology Council, Bobbie Kilberg; Virginia Attorney General Jerry Kilgore and Virginia State Rep. Jeannemarie Devolites. (FILE PHOTO) (Rich Lipski)
This 2002 photo shows the outside of AOL headquarters in Dulles. (FILE PHOTO) (Kenneth Lambert/Associated Press)
In this Dec. 11, 2001 photo, Robert Pittman, chief operating officer of AOL Time Warner, presents his keynote address to Internet World Fall 2001 at New York's Javits Convention Center. (FILE PHOTO) (Richard Drew/Associated Press)
This photo taken Feb. 29, 2000, shows AOL Chairman and CEO Stephen Case, left, and Time Warner Chairman and CEO Gerald Levin as they prepare to testify before the Senate Judiciary Committee in Washington, D.C. about the merger of AOL and Time Warner. (FILE PHOTO) (Mario Tama/AFP)
AOL CEO Gerald Levin is shown speaking before the House Commerce Telecommunications Subcommittee in Washington in this September 27, 2000 photo. (FILE PHOTO) (Brendan Mcdermid/Reuters)
In this 2000 photo, Steve Case, left, Chairman and CEO of America Online, hugs Gerald Levin, Chairman and CEO of Time Warner, following a press conference in New York during which the two companies announced that AOL would buy Time Warner for about $163 billion in stock. At the time, the merger was considered to be the biggest business deal in history. (FILE PHOTO) (Mike Segar/Reuters)
This 1999 photo shows James V. Kimsey, founding CEO and Chairman Emeritus of America Online. (FILE PHOTO) (Philip Bermingham Photography)
In this March 13, 1995 photo, Microsoft CEO Bill Gates, left, and America Online CEO Steve Case address the Microsoft Professional Conference for the Internet. (FILE PHOTO) (Lou Dematteis/Reuters)
Signs inside the lobby of AOL's Dulles headquarters are seen in this 2004 photo. (FILE PHOTO) (Joe Raedle/Getty Images)
The lobby inside AOL's headquarters is seen in Dulles. The firm, which is owned by media giant Time Warner, has seen its number of subscribers shrink in recent years amid fierce competition. (Joe Raedle/Getty Images)
David Card of Jupiter Research said the company did not handle the transition well, but it has worked hard to rebuild its place among online advertisers. “AOL burned some bridges in those days, and now they’re rebuilding those relationships,” he said. “It’s a whole new cast of characters now.”
AOL’s advertising division will be headed by Curtis G. Viebranz, formerly chief executive of Tacoda, a firm AOL is acquiring that specializes in targeting consumers by their online behavior.
The move represents an investment in areas that are just starting to mature, said Larry Shaw Jr., director of research at Borrell Associates, of Williamsburg, Va. “If they do pan out, they’re well-positioned because they got these companies that are developing products and tools that take advantage of the new technologies.”
It’s a fast-moving market. Last month, Google’s YouTube launched a form of advertising on some of the video clips on its site, placing semitransparent messages on the bottom of a video screen. The tactic is considered less intrusive than pop-up ads or “pre-roll” video ads that play before the main content.
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