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AOL's 'Netmare'

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At AOL’s recent sales conference in New York the slogan was “GO, greatness only.” Unfortunately, greatness is in short supply at AOL. Not least among the headaches is what to do with Advertising.com, the former savior of the company now in a rapid decline.

In the fourth quarter of 2010, Advertising.com’s revenue was 43 percent down from the same period a year earlier. AOL has attributed much of the fall to getting out of the search marketing business and the shutting of some European operations.

There’s more to the story. 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.

“It’s not the big mother ship ad network you used to see two years ago,” said Ed Montes, CEO of Adnetik, the Havas-owned trading desk. Mike Baker, CEO of DataXu, compares Advertising.com to a broker swamped by the advent of electronic stock exchanges.

In fact, the biggest problem, according to a former top AOL executive, is corporate neglect as AOL focuses heavily on the original content, brand advertising and promising initiatives like its Patch network of local sites.

Optimism persists within AOL. “The DSPs for the most part are providing some nice options for pure play audience buying, but the way we’ve run our business is a lot more robust than that,” said Don Kennedy, svp of network sales at AOL.

“We’ve been the leader in this space the past decade,” he continued. “I think this revolution puts us in a very good spot.”

However, it was hardly a ringing endorsement from its corporate parent that AOL attributed some of the revenue decline to the removal of Advertising.com placements from its own properties “to improve the user experience.”