Jury's Still Out on AOL's Future

AOL blamed its poor earnings performance last week on ongoing reorganization challenges rather than a lack of advertising demand. But industry observers say that AOL has a lingering sales conundrum: an abundance of content properties that it has yet to prove are worthy of premium pricing.Last week, AOL announced that its Q1 ad revenue declined 19 percent, with display advertising sliding by 13 percent (10 percent in the U.S.). That stood out, given that a week earlier Yahoo was boasting of 20 percent display growth in Q1, leading some to declare that a market resurgence was underway. Even Microsoft’s online ad division enjoyed solid 19 percent growth (boosted by search), and officials at the software giant predicted strong ad growth for the rest of 2010.“That’s a pretty glaring lag,” said David Hallerman, senior analyst, eMarketer, who also pointed out that AOL’s revenue decline had actually been more pronounced in previous quarters, indicating that things may be improving. “I’d say the jury is entirely out on AOL.”Buyers and analysts remain patient with the newly spun-off brand, yet doubts persist over whether AOL’s focus on niche content sites has permeated the market, or whether it will ever pay off in big ad dollars. One buyer, who spoke on condition of anonymity, described a promo poster that AOL sales execs once used that “unfolds into six panels and shows a massive sea of sites.” Indeed, AOL has 80 brands, ranging from Politics Daily to DailyFinance to Lemondrop, as well as a slew of long-tail sites. “That’s a complicated story,” said the buyer.“That’s exactly why we went through our reorganization,” countered Jeff Levick, AOL’s president of global advertising and strategy. In the past, the same AOL sales execs might call on a packaged-goods advertiser, an auto brand and a tech company in the same day -- selling the same list of 80 sites. “It was hard to be experts at anything,” he said.Now the group is organized into specialists, said Levick, who focus on creating custom content packages rather than emphasizing AOL’s breadth. And despite the rough earnings call, he added, “We see signs that this is starting to pay off. We’re getting deeper with top customers.” “Tim and Jeff are really smart guys with differentiated ideas. They understand what kind of content people consume,” said Carrie Frolich, managing director, MEC. “But it remains to be seen whether they can publish in a way that attracts premium pricing.” Frolich used Hulu as a potential model for AOL -- citing its ability to marry quality content with a stellar, ad-friendly presentation and design. “Otherwise, a lot of [AOL’s] content is just an article on a Web site that looks like any other article.” Many buyers are betting that Levick’s team will produce soon. “Yahoo went through something very similar,” noted Jordan Bitterman, svp of media at Digitas. “They had new leadership and an identity crisis and turned it around. I would expect the same thing at AOL.”The company may just need some more time to tell its new story. “Clients ask us all the time, ‘Is AOL still relevant?’ If anything, they have a perception problem,” said Bitterman.Joe Mele, Razorfish’s managing director, media and marketing, sees AOL headed in the right direction: “They are able to create content that is very targeted and are willing to do things to insert brands’ messaging.”Amanda Richman, evp, managing director, digital at MediaVest, agreed that AOL has improved the quality of its ad offerings every quarter since Armstrong et al came on board, and buys the argument that the reorg has held it back to a degree. “We should never underestimate how hard it is to turn a ship around,” she said, but added a caveat: “If we are seeing these results in year two, that’s a different story.”

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Jury's Still Out on AOL's Future

Mike Shields

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