Lessons from a Giant…
By David Fishman

AOL is the founder of the largest online media network the world had ever seen. However, as the internet developed and more companies joined the space, AOL began to slip in its ability to show profit and compete with companies like MSN, Google, and Yahoo. Recently AOL has made some painful changes in order to position itself to regain its lead in a market it helped create and define.

https://www.lynxtrack.com/signup.php

ClickZ and Cnet report that AOL is headed towards another round of layoffs. Something in the 500-700 person range focused on its main office in Virginia. The reason for these layoffs is to help trim the company to be more nimble as it builds a different type of AOL for the average consumer.

AOL was built on providing dial up service to anyone anywhere with multiple carrier’s and servers across the USA. However, with the explosion of Broadband and DSL services, AOL has had its core business hit hard and continues to see its base of subscribers decline.

AOL will shift its business model over the next few weeks from a focus on paid subscription to a free content site  like Yahoo.com. The goal will be to grab a larger chunk of the advertising dollars being spent online.

AOL recently created a new business unit called "audience," headed by Ted Leonsis, the former president of AOL who, sidelined during the boom years, has resurfaced as a leader in its turnaround. Leonsis' unit will try to draw more visitors to its AOL.com home page by offering more free content and services. It also hopes to drive larger audiences to its other properties such as Mapquest, AOL Instant Messenger and a newly released upgrade of its long-suffering Netscape browser. Analysts agree that  AOL has no choice but to chase growing Web advertising dollars to offset inevitable defections from its dial-up service.

Tough medicine and the rebounding online advertising market have fueled profit growth at AOL, giving much-needed breathing room for the company as it looks for a way out of its dead-end dial-up business. Revenue has remained flat at about $8 billion a year since 2002.

Despite losing millions of subscribers in the United States, AOL is on track to earn close to $1.9 billion in operating income before interest, taxes, depreciation and amortization (OIBITDA), an industry benchmark of profitability.

AOL's tenacious earning power has for now, largely squelched talk of a possible spinoff or sale of the division. Suitors have approached Time Warner to propose acquiring AOL, according to sources close to the company, but the media giant has not budged, opting instead to give AOL a chance to turn itself around.

It is clear that the online space is going to be driven by free content to the consumer with companies spending big dollars to lure consumers to their sites. With this in mind, and reviewing the AOL landscape, it is important for the online advertising industry to tailor our efforts to meet the need for better and more successful content; to drive both consumers and advertisers our way in order to increase our own profitability in the long term.

David Fishman
dfishman@wrpmedia.com