AOL Plays Catch-up on Web Ads

Bob Sherman knows the challenge before him all too well.

During a recent conversation with a senior agency executive, the president of interactive marketing for America Online says he was told, “Bob, see, what you guys are doing is daring us to do business with you … so we don’t.”

The numbers certainly back up the executive’s assertion that advertisers won’t take AOL’s dare; as part of larger strategic announcements about AOL last week, the beleaguered online unit of AOL Time Warner once again lowered expectations for advertising and commerce revenue. Describing 2003 as a “transition year,” the company said such revenue would decline next year by 40 to 50 percent, to $750 million.

Yes, Sherman and his team have their work cut out for them.

While most of the large pool of AOL Time Warner observers spent the week mulling the decision to focus AOL’s business on bringing in more broadband users and creating more proprietary content, media executives were trying to figure out what the news means for them.

In an interview last week, Sherman tried to provide some answers. A longtime radio and ad sales executive who was named to the post ear lier this year, Sherman outlined a number of strategic initiatives that he said will allow AOL to “earn the right to claim a leadership position” in the online advertising industry.

Referring to the days when the company would routinely announce mega-cross-platform deals, Sherman said, “AOL wasn’t in the advertising business. We were in the deal business.”

Now, he said, creative and strategic capabilities will be added within both the online ad unit and AOL Time Warner’s Global Marketing Solutions Group, which will focus on the needs of clients rather than just viewing them as cash cows.

Global Marketing Solutions had been a fractious unit seemingly focused on hyping the synergies of the merged company and was run, during the Bob Pittman era, by the controversial AOL-side exec Myer Ber low. In September he was replaced by Enter tainment Weekly publisher Michael Kelly. Sherman said the group is being realigned to give people responsibility for individual accounts, a more solution-oriented approach.

Sherman also clarified the role of Lisa Brown, who joined the company last month in the new post of evp, interactive marketing. Brown will lead a strategy group charged with developing integrated programs for AOL clients.

In focusing on strategy, AOL is merely catching up to its competitors.

Until now AOL has also lagged in its involvement with the Interactive Advertising Bureau, which has played a crucial role in bringing order to the chaotic online-ad marketplace. Lon Otremba, another evp in AOL’s interactive marketing group, was recently named to the IAB’s executive committee.

Greg Stuart, CEO of the trade group, expressed puzzlement at AOL’s former lack of interest but said it is now an active participant.

It takes a long time for a sleeping giant to wake up. AOL is now beginning to address rich media but still lags far behind MSN and Yahoo!. Ditto with targeting. But Sherman sought to dispel advertiser gripes that AOL doesn’t offer nearly the segmentation capabilities of other online properties. As an example, he cited a new service, Customer Connect, which will open up AOL’s vast membership database to marketers, who will be able to determine whether their customers use the online service. He also cited the recently released AOL 8.0, which allows members to customize the service and in turn allows advertisers to better target members.

AOL may be making strides, but it still has a way to go before the constit u encies it needs most get the message. “The thing about AOL is they still have so much potential, but they’re still so internally focused,” said Phil Bienert, manager of CRM and e-business at Volvo Cars of North America. With MSN, he says, Volvo is included in the development cycle for new releases of the software. The client has yet to see a similar practice from AOL, although “we’ve asked for it specifically,” Bienert said.

Volvo is hardly a client AOL might be likely to ignore: Two years ago, the two companies made online history when Volvo launched its S-60 solely online and solely with AOL. And Volvo is that rare advertiser that views online media as central to its marketing plans.

But executives are noting subtle changes in AOL’s approach. John Messina, who heads agency relations for AOL, briefed the interactive marketing and new-media committee of the 4A’s following last week’s analyst and investor meeting. Sharon Katz, director of media at interactive shop Modem Media, gave the meeting high marks. A successful AOL “sets the tone for the industry,” she said.