• by Diane Mermigas , November 18, 2008

After two years as AOL chief executive, following several decades at the top of NBC, Randy Falco's primary charge continues to be monetizing traffic. Despite media's massive digital convergence, the rules have not changed--even in a global recession, he says.

A revamped AOL's ability to deliver more relevant vertical content and contextual and behavioral advertising services could prove ironically beneficial in an economic downturn. Plus, AOL is wrestling with its own legacy demons while promoting its soup-to-nuts rebuild amid nagging rumors of its sale to Yahoo or Microsoft. The "disruptive and distracting" challenge is nothing new for Falco, who helped reinvent broadcast network television more than once.

Showcasing AOL's audience reach and engagement growth, measurement, vertical content and one-stop advertising analytics and placement in a "Wider Web" road show is second only in importance to unveiling a redesign of Bebo next February. The 40-million-member social network it acquired for $850 million earlier this year will be morphed into a full-service social media network.

The road show moves beyond Dallas, New York and Atlanta this week to Chicago and Los Angeles, coupled with day-long team visits to convince agencies how AOL is a solution provider. The 25 new or revamped vertical niches that AOL has launched in the last 18 months yielded a 28% growth in second-quarter revenues and a 24% growth in third-quarter revenues. More content vertical growth, which already comprises about two-thirds of AOL's total revenues, should be evident by mid-2009, when many of the company's extraordinary income drains are gone. Until then, it's an uphill battle; Wall Street analysts are focused on AOL's overall rev declines for this year and next--and its painfully complicated past.

"This is not the old AOL; it is a first-class ad-based broadband Web biz and supported by the single biggest ad platform on the Web," Falco said in an interview Monday. "We've created something it took us a year to do. We went out and acquired seven companies on the advertising side. There are a total of 16 acquisitions we have made, and we're 80% to 90% integrated. We've created the people networks. We've created platform that reaches 91% of everyone online, and we're putting together a new version of our publishing assets which will be renamed by the end of the year. We're at the end of the very arduous process of remaking this entire company, changing our culture and our approach to the marketplace."

Falco also thinks the economic downturn can work to AOL's advantage. While the automotive companies are withdrawing from big-event advertising (Olympics and Super Bowl) and face major restructuring, they still have to sell cars. It is putting its acquired Tacoda and Quigo technology systems to work to locate and match qualified online consumers with automakers even in a declining market. AOL's Third Screen Media, which operates the largest mobile media network, and video ad-serving platform Adtech play to what Falco says will be the growth of global out-of-home revenues.

True to his years in broadcast network television, Falco has simplified AOL's advertising measurement, placement and pricing proposition to parallel that of traditional media demographic advertising. His efforts to remake AOL into a media company have been strained by uncertainty about its future. Bill Wilson, executive vice president, programming, has aligned the ad-supported branded niche content verticals much like cable TV networks outside of the AOL moniker: such as young men's Asylum and Lemon Drop for young women. AOL's historic walled garden has crumbled and given rise to a broad distribution model of premium content. AOL's secret weapon could ultimately be Truveo, a video search engine embedded into all of its content verticals to help consumers and advertisers find what they need.

Much of Falco's meticulous rebuilding has been overshadowed by Time Warner's failure to monetize AOL since their $184 billion merger in 2001. However, pulling together all of the revamped advertising and content could effectively begin to sway Madison Avenue even before AOL's future is determined. There is no news on Time Warner's conversations with both Yahoo and Microsoft about a possible deal for AOL, in which it would continue to have an ownership stake. Recently thrown for a loop by Google's abrupt withdrawal from a proposed advertising alliance, Yahoo is still grappling with its unclear destiny and plummeting stock price. Cash-rich Microsoft is resisting a move on either company.

Meanwhile, AOL is set on growing its share of an online advertising market that could top $40 billion by decade's end while expanding its content reach through numerous new partnerships.

After shaking loose of the subscription business, adapting to interactive advertising and tearing down its content wall, AOL is eager to move forward. It's not clear whether it can move fast enough to boost a market cap from a diminished $6 billion to $4 billion, analysts say.

"AOL is ready to approach the market again as a disruptor; that can help advertisers and consumers take advantage of the marketplace change that continues," says Falco. With distribution platforms and display windows collapsing into each other, and everyone still searching for new ways to monetize content and advertising," he promises: "This is a story that isn't over yet."