AOL Plays Catch-Up on Ads

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By Zachary A. Goldfarb and Sam Diaz
Washington Post Staff Writers
Wednesday, September 19, 2007

AOL's move to New York City is based largely on the hope that by getting closer to advertisers, it will secure a bigger share of an online advertising market that's dominated by its rivals.

It's the latest in a series of actions that the company has taken to try to reinvent itself from its old dial-up Internet business. While AOL has grabbed an 8 percent market share in the $16.8 billion U.S. online advertising market, according to Jupiter Research, its growth has slowed in recent months. And some analysts say AOL faces a huge task in trying to wrest business from powerhouses such as Google.

Google has 25 percent of the online ad market and is trying to buy another industry leader, DoubleClick. Yahoo, with 15 percent, has bought Right Media and is buying BlueLithium. Microsoft, which has 7 percent of the market, has bought aQuantive and ScreenTonic.

As it seeks a bigger footprint in the industry, AOL is looking to serve ads not only on its properties such as its portal, AOL.com, and gossip site TMZ.com but also across most of the Web on videos, blogs, social-networking sites, mobile devices and elsewhere.

The company, which has been buying online-ad companies over the past two years, announced Monday that it is moving its headquarters from Dulles to New York to be at the nucleus of the advertising world and would merge the advertising companies into a new entity called Platform A, which it said would be the largest advertising network in the world.

AOL's primary advertising subsidiary, Advertising.com, reaches 90 percent of the monthly U.S. Internet viewership, according to ComScore, of Reston.

"They're a content site, whether they create or license it, and that's one source of their revenue," said David Hallerman, an analyst with eMarketer, an online advertising market research firm. "But now they have a means for getting money from advertisers who want to advertise across multiple sites on networks, and that's going to be a growing area."

In August, AOL's new strategy showed some weakness. It reported that advertising growth from April through June was 16 percent, compared with 40 percent in the first three months of the year.

Some analysts blamed the slowdown on two factors: changes to AOL.com that made advertisers more cautious and the proliferating number of places online, such as blogs and videos, for companies to advertise, many of them significantly cheaper than the sites of big media companies.

In announcing Platform A, AOL chief executive and chairman Randy Falco acknowledged as much.

"With the increasing fragmentation of online audiences, the best way to serve advertisers is to enable them to harness massive advertising networks that reach across the entire Internet, not just our AOL Web sites," he said.

One of the ad companies AOL recently bought, Lightningcast, caters to video, while another, Third Screen Media, targets the mobile market.

In the 1990s, AOL was the dominant player in online advertising. That's when it was providing dial-up Internet access to tens of millions of people, many of whom accessed the Internet through AOL's proprietary software.

With the rise of Yahoo and Google -- which offered advertising based on search results at a far lower cost than banner and display ads that appeared on AOL did -- AOL struggled to compete. Meanwhile, its subscriber base declined as users migrated to cable and telephone companies for Internet service.

David Card of Jupiter Research said that the company did not handle the transition well but that it has worked hard to rebuild its place among online advertisers. "AOL burned some bridges in those days, and now they're rebuilding those relationships," he said. "It's a whole new cast of characters now."

AOL's advertising division will be headed by Curtis G. Viebranz, formerly chief executive of Tacoda, a firm AOL is acquiring that specializes in targeting consumers by their online behavior.

The move represents an investment in areas that are just starting to mature, said Larry Shaw Jr., director of research at Borrell Associates of Williamsburg. "If they do pan out, they're well-positioned because they got these companies that are developing products and tools that take advantage of the new technologies."

It's a fast-moving market. Last month, Google's YouTube launched a form of advertising on some of the video clips on its site, placing semi-transparent messages on the bottom of a video screen. The tactic is considered less intrusive than pop-up ads or "pre-roll" video ads that play before the main content.


© 2007 The Washington Post Company

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