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AOL Invites Ads Into Chat Rooms

By David S. Hilzenrath and Victoria Shannon
Washington Post Staff Writers
Tuesday, March 5, 1997; Page C10

America Online Inc. yesterday opened its popular "chat rooms" to a new kind of visitor: advertisers.

The move was another major step in the company's efforts to remake itself in the image of advertising-supported media companies. The plan is to sell banner ads in the electronic forums where users carry on live typed conversations.

The initiative helped boost AOL's stock $3 to $43, its highest close since July.

The effort reflects AOL's determination to find new sources of revenue as it tries to lift itself out of the red.

The Dulles-based computer online service historically relied on revenue from subscriber fees but is now counting on advertising and online retailing to make it profitable over the long run.

The need has become more acute since AOL began offering unlimited use of its computer online service for $19.95 a month instead of charging subscribers by the clock after they use up a monthly allotment of online time.

"It's something you knew AOL would have to do as soon as they announced unlimited pricing," said Mark Mooradian, senior analyst with Jupiter Communications Co., in an interview yesterday at the Consumer Online Services conference in New York.

Advertising accounted for less than 3 percent of AOL's revenue during the quarter that ended Dec. 31. AOL has forecast advertising revenue of $50 million to $100 million this year. Mooradian said the lower number sounds "credible."

In another step toward diversifying its revenue, AOL announced last week that a Pennsylvania long-distance company had paid it a $100 million advance to promote its telephone service to AOL's 7.5 million U.S. subscribers.

The deal with Tel-Save Holdings Inc. illustrated AOL's versatility as a marketing medium: AOL agreed to post Tel-Save ads, to enable subscribers to sign up for the phone service while online and to put the long-distance charges on subscribers' credit cards, which AOL automatically bills each month for its own charges.

"The line between advertising and commerce begins to get very blurry," said Robert W. Pittman, president of the firm's AOL Networks subsidiary. Advertising executives said chat areas offer unusual advantages and disadvantages that should make AOL's new effort an interesting marketing experiment.

On the average, AOL's subscribers spend almost a quarter of their online time chatting, often in rooms dedicated to specific topics such as cars, gardening, astrology, pets and sports. Some of the chat rooms are geared toward specific groups, such as "Gay and Lesbian" or "Divorced Only." Some of the chat is sexually oriented.

Advertisers may be attracted by the opportunity to "narrowcast" their messages to targeted groups, ad executives said.

"I think they can wield great power with advertisers," Jupiter's Mooradian said. "It's a lot of eyeballs."

But advertisers may be wary of placing their ads in an unpredictable environment. "The downside is, you could have a banner come up and the chat room decides to pick on the advertiser," typing snide messages about it, said Rishad Tobaccowala, president of Giant Step, a subsidiary of the Leo Burnett Co. ad agency focused on interactive media.

And advertisers may be challenged to grab and hold the attention of people trying to keep up with the online conversation as it passes quickly across their screens.

"It would be very difficult to pay attention to the advertising and to pay attention to what's happening in the chat room," said G.M. O'Connell, president of TN Technologies Inc., a digital marketing firm.

© Copyright 1997 The Washington Post Company

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