|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | |
MAY 7, 2003
By Brian Hindo For AOL, Ads Are Still a Minus As rivals crank up their ad revenue, the online giant isn't keeping pace. The reasons for its struggle include hubris and technology It was a rah-rah quarter for online advertising, no doubt about that. In April, bellwether Internet publishers such as Yahoo! (YHOO ) and the New York Times Digital (NYT ) reported better-than-expected earnings for the first quarter, thanks in good measure to an increase in ad sales that they projected would average 12% for the full year (see BW, 5/5/03, "Online Ads Take Off -- Again"). Just about the only laggard, it seemed, was AOL Time Warner (AOL ), whose America Online Internet service reported a 42% plunge in ad sales for the quarter. In a sense, that mammoth decline is misleading, since it primarily reflects the expiration of a remaining $178 million worth of multiyear, monster campaigns with dot-com-era customers such as PurchasePro and Realtor.com -- deals that are all but impossible to replicate in the current economy. Moreover, Don Logan, AOL Time Warner's chairman for media and communications, noted that America Online sold more new ads in the first quarter than a year ago, though he didn't reveal dollar comparisons. Of course, the other way to look at the situation is by the numbers: The online service's first-quarter ad sales fell to $226 million, from $389 million a year ago. That helped cut America Online's total revenue in the first quarter to $2.2 billion, vs. $2.3 billion a year earlier. Its operating earnings rose 11%, to $194 million -- thanks to cost-cutting and its ability to wring more revenue from existing subscribers. BAD NEWS TED? The steep ad revenue drop-off almost certainly helps explain the Apr. 29 resignation of Robert Sherman, AOL's president for interactive marketing. Sherman was recruited by former AOL Time Warner CEO Bob Pittman in 2001 to restructure the Internet service's ad-sales team. Though a spokesperson says Sherman's tenure was always intended to be temporary, his departure dramatizes the extent to which the jury is still out on AOL Time Warner's ability to turn around its flagging America Online unit -- a task that must be accomplished before the parent company can return to full health. That bounceback doesn't seem imminent, judging by the fact that on May 5 Vice-Chairman Ted Turner sold 60 million shares of AOL Time Warner stock -- about half his holdings -- for around $790 million. Turner probably wouldn't have taken that step had he foreseen a quick rebound in the company's fortunes or its stock. AOL closed on May 6 at $13.30, up from its 52-week low of $8.70 but well below its 52-week high of $20.13. During an Apr. 23 conference call with analysts, Logan predicted that ad sales for the online unit would grow at a "double-digit" clip in 2004. Yet that raises the question: Why can't the most powerful player in the online world, with the most paying subscribers by far, deliver ad sales growth on a par with rivals such as Yahoo, whose first-quarter ad revenue rose by 38%? "ILL-WILL" BURDEN. One reason, it turns out, is that even though America Online's backlog of big deals is disappearing, it still retains a big backlog of animosity from advertisers and ad agencies that remember its high-handed ways when it ruled the boom-time roost. Agency reps complain that the online service once routinely snubbed small and midsize advertisers in favor of big fish -- a tendency that has come back to haunt America Online and its sales force in leaner times. "They're starting from far behind in this rebound because of all the ill-will they generated during the boom," says one online ad agency executive. AOL's brass recognizes the problem. "We often didn't return phone calls if the deals were perceived to be small," concedes Lon Otremba, the executive vice-president for strategy and operations at the AOL interactive marketing group. "We burned a lot of bridges." Worse, some ad buyers say the online giant remains stuck in that mode. "AOL is still full of hubris, relative to its place in the world," complains one Internet agency head. "They still only want to make $1 million deals." Indeed, Otremba says much of the first-quarter ad-sales growth Logan lauded came from deals in the $500,000 to $1 million range. But "we absolutely are going after smaller business, too," he insists.
  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
