AOL’s Stacked—Is That a Problem?

Portal's ad network is up while display is down

AOL’s ad business is on the upswing. But is the company’s dedication to ad tech, along with its rebounding ad network division, hurting its direct sales efforts?

The company’s global ad revenue jumped 7 percent in Q3, landing at $340 million according to the company’s earnings report issued on Tuesday (Nov. 6). But AOL's display ad revenue slipped 1 percent to $135.4 million globally while falling 3 percent domestically—landing at $122.5 million. That’s despite traffic on AOL properties climbing by 4 percent in Q3 compared to the same period last year.

Meanwhile, AOL’s once-left-for-dead ad network saw its revenue soar by 18 percent to $112.8 million.

The conclusion one might draw is that AOL is facing the same challenge it has faced in the past: buyers choosing the cheaper, more efficient option of "buying AOL" through its own ad network.

That’s not the case, CEO Tim Armstrong argued. In an interview with Adweek, he noted that all of AOL’s ad business is sold directly, whether advertisers opt for programmatic buys using the company’s technology or for custom ad buys.

“Those two things are slightly unrelated. What we’re seeing from a macro strategy is that our full stack [which includes, an ad server, a DSP and AOL owned properties] from the exchange business to premium—that has overtaken our overall ad strategy. That’s why you see our ads business up 7 percent. There is no disintermediation happening.”

On that point, Armstrong claimed that AOL is seeing increased business from the top 100 advertisers as well as from the largest agency holding companies. But does that imply that the middle of the market is collapsing? Not necessarily, said Armstrong.

“We’ve seen the market bifurcating more,” he said. “There are few bigger companies to do giant partnerships. And we’re seeing high CPM video buys to network buys. And we are very good with programmatic buying, while others are having trouble with it.”

Speaking of video, without providing specifics, AOL reported that its video network saw its revenue jump by double-digit rates both year over year and quarter over quarter as of Q3. However, Armstrong posed the theory that Web video advertising hasn’t grown as much as it could have of late—surprisingly, because of the video NewFronts. Armstrong's argument is that most video publishers expected sales growth to be in the double-digit range this year, but instead saw single-digit growth, specifically because the NewFronts brought so many TV and digital buyers and sellers together.

“I think the investment would have been higher this year if it weren’t the first time everybody is going to integrated school," he said. "Nobody had ever worked together anymore. The desire was there, but the operations weren't there.”

Armstrong also weighed in on the hype surrounding native advertising. In recent years, AOL has pushed hard on bigger, bold display ad units—under the umbrella initiative Project Devil. Is that effort hurt by the recent push for integrated ads that don’t look like ads?

No, says Armstrong, who considers Devil ads to be AOL’s version of native ads. “Very, very quietly we’ve actually rolled out the Devil network," he said. "Devil started as a native, premium format, and now we’ve got 100 publishers running Devil ads and getting premium pricing. It’s a very scaled system. Publishers have to be very careful with custom ad opportunities. You have to be able to do native at scale.”

Lastly, Armstrong provided details on AOL’s efforts to mobilize relief efforts for the areas effected by Hurricane Sandy. With some guidance from local Patch editors, AOL was able to get 500 employees together over this past weekend to deliver food and supplies to the devastated areas of the East Coast using multiple 18-wheeler trucks. "These were all goods these employees bought themselves,” said Armstrong. 

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