• The New York Times, Monday, August 20, 2007 11 AM

AOL had little option but to overhaul its failing business model, but despite a positive start to its new life as a free, ad-supported content provider, the Web portal's ad growth is already narrowing. As a result, Time Warner shareholders are questioning whether it was a smart move for the media giant to keep AOL.

The Time Warner unit is still one of the most popular Web destinations, attracting more than 90 million visits per month, but the name of the game these days is monetizing your traffic, something AOL, with 16 percent ad growth in the second quarter, isn't doing sufficiently. Internet ad spending overall is expected to increase 28.5 percent, according to eMarketer.

AOL's problem highlights one of the great paradoxes of the Web business today: Web portals, which have some of the largest audiences, are failing to benefit from the increase in online spending. Yahoo, for example, reported just 8 percent growth during the latest quarter. The greater problem for the major portals is that younger audiences don't need help navigating the Web; they'd rather read blogs and create customized home pages and social networking profiles. The rise of Web 2.0 firms like Facebook and YouTube has made it harder to keep their users.

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