RSSHow soon will AOL become Google's prime competitor?
By Scott M. Fulton, III | Published May 28, 2009, 11:53 AM
It's time to stop with all the "I told you so's" and the gloating and the self-congratulation, on the part of everyone (myself included) who never saw synergies between the former America Online and Time Warner, who are just as capable of reading the big, fluorescent handwriting on the wall as anyone else. We knew it wouldn't work. End of part one.
The task before Tim Armstrong -- minted as CEO of AOL in March -- and his team is to define the company. It has some very old parts and some very big assets, but other than that, it's a startup. If you "Google" Tim Armstrong (a number of ironies latent in that phrase), you discover almost instantly the type of independent CEO he will be. He helped build Google into the advertising sales giant it is today (its merger with DoubleClick notwithstanding), and he takes the knowledge of that blueprint with him to AOL. He is an ad man, and AOL will be an advertising platform.
Before you come to the conclusion that AOL is already a dead hulk, keep in mind that the part people focus on the most is the part that faces the public most directly. That's the AOL "portal," the service that defined the original company and which used to garner subscribers. It's still a problem for AOL, but getting rid of Time Warner's baggage is the first step to resolving that problem.
Behind the portal -- the part many folks don't appreciate -- is what is and may continue to be for some time the Internet's most effective advertising component, Platform-A. According to comScore rankings released last week, Platform-A continues to reach 91% of the US' Internet users -- meaning, sometime over the month of April, 9 out of 10 Americans were served an ad by Platform-A. Google's network (formerly considered DoubleClick's) reaches 85% of American users, and that number continues to grow. But the efficiency and versatility of Platform-A is now an established fact, and Google's gains will not result in losses for Platform-A in this department -- this isn't a market share metric.
So if Platform-A were a rocket, we could say it can comfortably burn at 91%. But how much thrust does that deliver? That's been the problem of late, as indicated by AOL's own first quarter corporate report, shared with the SEC last month (PDF available here). Advertising revenue for AOL Network declined by 20% annually in the last quarter, for reasons the company described thus: "The decrease in display Advertising revenues generated on the AOL Network was primarily due to weakening global economic conditions, which contributed to lower demand from a number of advertiser categories and downward pricing pressure on advertising inventory. The decrease in paid-search Advertising revenues on the AOL Network, which are generated primarily through AOL's strategic relationship with Google, was attributable primarily to decreases in search query volume on certain AOL Network properties."
That strategic relationship is now being rethought, as Google is selling is exercising its option to sell its 5% stake in AOL back to Time Warner prior to the spinoff. It isn't the reach of Platform-A that's been wearing down on AOL, if we read this correctly. It's that the effectiveness of "portals" -- the things that AOL said four years ago would constitute its primary product -- is declining, especially amid an Internet landscape that's being defined more and more by connectivity and social interlinking than by front ends and gateways.
The big synergy play with AOL + Time Warner was the notion that content would flow freely from the New York + Hollywood juggernaut into the Dulles factory. But that synergy could only work if the principal dynamic of the Internet's evolution were to cease in its tracks: namely, that the Internet is changing the nature of content itself, forcing old New York and old Hollywood to reconstruct themselves in order to survive. That restricted the flow of oxygen to AOL's portal, as Time Warner became the biggest weight around its neck.
As of the third quarter of 2009, that'll be gone. With a healthy platform still capable of generating the energy it needs to move, Tim Armstrong and company can now focus their attention on redefining the part of AOL that faces the public. It now has the opportunity to scrap everything we think of with regard to a "portal," and without Time Warner weighing down on it and without Google taking a piece of it, re-engineer that part of AOL that connects with his customer.
And looking at Armstrong's record, does anyone have reason to believe now that he can't accomplish that?
December 21st, 2012
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|AOL has a huge uphill battle if it wants to compete with Google. First it needs to compete with Yahoo and Microsoft. The company's ad revenues have been declining steadily each year since 2005. Platform A may be a nice move to win back some territory from Google and better compete with Microsoft and Yahoo. But AOL has yet to prove it has a product that anyone (consumers or advertisers) really want. It bought mindshare by acquiring Advertising.com, AdTech, and 6 other companies, now AOL needs to show it can make that work.
Reach of Platform A according to ComScore really means nothing. What matters is the customers and revenue, both of which AOL has been bleeding. It's efficiency and versatility is not yet an established fact anymore than Yahoo and Microsoft's efforts in the ad space.
Will AOL be in a better position to compete with Google sans Time Warner? Perhaps. But the company has yet to produce products people actually want to use in years (the ones people do use it acquired). And remember, AOL was holding back Time Warner, not the other way around.
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|Time Warner's principal deficiency has been its inability to translate its (non-Turner) magazine and broadcast brands into 21st century digital revenue centers. It would have had this same problem, and conceivably the same results, had it never merged with AOL. By all rights, AOL should have provided Time Warner with solutions to this problem, but instead the Time Warner board set up the table so that AOL's input (such as it was) became negligible and thus meaningless.
The merger made things worse by making the Time Warner board essentially responsible for transitioning another dying property -- dial-up Internet -- at the same time it was supposed to be transitioning the rest of its digital media. In that sense, you could say that AOL held back Time Warner, but whose fault is that?
-SF "Would Have Had Better Luck Merging with Compaq" 3
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|I'd say Comscore stats probably have a margin of error somewhere in the 10-20% range (they are generally awful), so I wouldn't read too much into them. Do you really think that 15% of people don't see a single Google ad during a month? Considering that almost every site uses them somewhere (unless you never left MSN.com), you can't avoid them.
There is also the question of what they are measuring and how it applies to the businesses. Platform A includes Advertising.com, a huge volume, low value ad network. Google runs a very different sort of ad network with their contextual ads. They tend to attract different types of ads and, in large part, different types of advertisers.
The "network" that was formerly DoubleClick's wasn't an ad network at all. DoubleClick sold off their ad network in 2001 (Europe) & 2002 (North America). All they have been doing since then is providing the tools that publishers and agencies use to manage and serve their ads. That doesn't include buying or selling at all, so the "reach" figures were simply a marketing figure for how pervasive their technology was. It is kind of like saying 80% of web sites use Apache, so you should talk to the Apache Software Foundation if you want to put your content in front of the users of all those sites.
Platform A has some potential, but it will take a lot of work to realize it. Right now, they have a bunch of unrelated products that came from different acquisitions. None of them integrate with each other at all. Previous management has tried to do more with it and hasn't had much success.
DoubleClick is finally starting to create new products and do some integration with Google after years of stagnation, so Platform A's services products are going to have an even steeper hill to climb.
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|Scott, you seem to have something against the original Time Warner:
"getting rid of Time Warner's baggage"
"Time Warner became the biggest weight around its neck"
"Time Warner weighing down on it"
I think that's a bit unfair, considering just about anyone you ask will tell you that it was in fact AOL that was always the dead weight on the merged company. Time Warner was doing just fine prior to it being gobbled up by AOL in 2001. AOL, on the other hand, had already started its long decline into near obscurity, even if it wasn't so obvious yet at the time. Granted, both sides have had their ups and downs in the interim, but putting the blame for the merger failure on Time Warner's shoulders is both unfair and incorrect.
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|_Squarely_ on Time Warner's shoulders, you're right, that might be a bit unfair. But I would pin the blame for AOL's lack of momentum on the fact that it's been bound to this behemoth of a conglomerate that had no collective understanding of the nature of the Internet business -- any understanding Steve Case might have lent to it, somehow vanished along with Ted Turner's saddles.
-SF3
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