AOL's Falco Outlines Strategy To Run Fewer Ads

by Gavin O'Malley, May 25, 2007, 6:00 AM

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AOL has a new strategy for boosting ad revenue: Run fewer ads.

The counterintuitive plan--presented Thursday by the company's Chairman and CEO Randy Falco and Chief Operating Officer Ron Grant during a Goldman Sachs conference--is intended to make AOL a less cluttered and more inviting environment for users, and a more effective platform for advertisers.

Grant described it as the "uncluttering of the AOL environment." And while the inspiration for the initiative was putting the consumer first, Grant insists it also has a positive impact on advertisers.

"Our ads are delivering better value for our advertisers," he said.

It's all part of the six-month plan to relaunch all of AOL's products and content verticals, which Falco initiated when he took the company reins last November.

"We were behind in terms of product development," Falco admitted.

Falco is also in the process of placing more emphasis on search through AOL's ongoing partnership with Google, as well as social networking and sports coverage.

"We know we're behind in sports and social networking," Falco added.

Of approximately 35 content verticals in which AOL competes, the company has already relaunched its health and finance sections, with more slated for launch through the summer.

Of the relaunched verticals, Falco said, traffic is up about 25% across the board.

Earlier this month, AOL helped parent company Time Warner post better-than-expected earnings for the first quarter of the year. AOL's ad sales soared 40% year-over-year, thanks largely to its move from a walled-off subscription service to a free, ad-supported Web portal.

AOL's overall revenue fell 25% due to waning subscriptions, but that didn't keep its adjusted operating income before depreciation and amortization, or OIBDA--a key measure of profitability--from rising 27%.

To continue its impressive growth, however, AOL needs to better exploit its strengths, Falco and Grant said.

"We need to open up AIM," said Grant, referring to AOL's hugely popular instant messaging service and how it could be integrated into other areas of a consumer's Web experience.

MapQuest, AOL's mapping service, is another area where the company has so far failed to capitalize, letting rival services like Google Maps move in on market share, he said.

"It's been a little underinvested," said Grant. "You're going to see a much revitalized MapQuest."

Regarding advertising, Grant said: "We keep one thing at the top of our list: What is the ROI? What are the tools and feature sets to drive that?"

Asked if AOL has an image problem with younger consumers, Falco insisted AOL is able to reach a broad range of consumers.

"We have a clean slate with people," he said.

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