• by George Simpson , Featured Contributor, November 7, 2008

Time Warner's AOL this week reported a 6% ($33 million) drop in ad revenue during the third quarter--driven, it said, by declines in display advertising on AOL Network sites and sales of ads on third-party sites (aka Platform-A). Thank goodness for the collapsing economy--so that management could deflect blame for AOL's continued subpar performance despite quarterly promises of improvement. And by the way, other media companies like NetShelter Technology or The Travel Ad Network have put up sales gain of 100% over the same period. Economy indeed.

AOL celebrated its disastrous collapse not by cutting the head off the rotting fish, but rather by laying off another 600 or so souls. This has become an annual ritual, where AOL fails to perform and the rank and file take the bullet just in time for the holidays. In October 2007, Falco announced a plan for 2,000 layoffs. On the fateful day--dubbed Bloody Tuesday by bloggers--750 employees in Dulles got the ax.

Occasionally Messrs. Falso, Grant and ultimately Bewkes shoot one of their field commanders as if they alone were to blame for what ex-employees call "the single most dysfunctional company in the new media space." The body count includes Michael Kelly, Joe Ripp, Jon Miller, Jan Brandt, Len Short, Curt Viebranz and countless others thrown under the bus in the name of persistent reorganizations that result only in worse sales and worse revenue.

You don't have to look very far down discussion lists to uncover the root problem. Here is a story retold just this past week on Silicon Alley Insider: "Here is an example of exactly how non client focused Platform A seems to some of their customers. Speaking to a client this week, a small agency (southeast) with money to spend, I was told that they could not get a call back from anyone at Platform A. So, instead they placed $500,000 with a much, much smaller (think 15th to 16th ranked) ad network."

Since 2004, AOL has supported its business on the back of acquisitions, a short list of which we provide here:

Advertising.com (ad network); MailBlocks (e-mail service provider); Xdrive (online storage); Wildseed (mobile software); Weblogs, Inc (ad network); MusicNow (online music store); Truveo (video search engine); Lightningcast (Internet marketing); Userplane (social network service); GameDaily (video game pub); Relegence (financial services); Third Screen Media (mobile advertising); AdTech (advertising technology provider); TACODA (behavioral ad network);Quigo (contextual ad network); buy.at (affiliate network); Bebo (social network service) and Sphere (Web search engine).

Of course, AOL's largest and perhaps most infamous acquisition was the $4.2 billion purchase of Netscape--for which the usage share steadily fell from over 90% in the 1990s, to less than 1% last year. The hits just keep coming. In March 2004, Google launches Google Maps to compete with AOL's MapQuest. MapQuest's traffic flatlines while Google sees 135% annualized growth. In 2006, AOL launches AIM Pages, its own social networking site, after News Corp. buys MySpace. AIM Pages fails to carve out a niche, and after about a year, it is merged with the old AOL member directory.

Within a year after acquiring Tacoda in 2007, the foremost behavioral targeting ad network at the time, virtually all of the most knowledgeable Tacoda managers were either fired--or, crushed under the pain of working with AOL's inane management, left the company.  More than one reporter has said to me that there is no one left at AOL who understands behavioral targeting.

The bottom line is that all of these billions of dollars of acquisitions have been so mismanaged that they are not providing the value that AOL said they would as the underlying justification for their purchase. Since most of the talent that started and made these companies; successes were broomed by AOL, the blame has to fall on the inability of AOL's management to effectively integrate these businesses.

Blame the economy. Blame the second tier of management and toss them out the door. Make up for your lack of ability to increase sales by reducing costs through cutting innocent bodies out of the company.  But for goodness sake, don't point the figure in the direction of where the real blame lies--right at the top.

 

Thanks to Fast Company for providing data on some of AOL's benchmark failures.