AOL Ads Trail Yahoo, Project Devil Cools

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Putting added pressure on management, home page display ad trends at AOL remained "sluggish" through the first half of the third quarter, according to a new report from Macquarie Securities.

Worse still, AOL fell behind Yahoo in terms of its proportion of higher-priced oversized/custom ad units -- 17% vs. 25%. "This was a meaningful decline from 24% for [the second quarter of the year] and 26% in [the first quarter], when AOL led all portals in terms of oversized/custom home page ad units," according to Macquarie analyst Ben Schachter.

Earlier in the year, Macquarie expressed confidence that AOL's Project Devil ad initiative would help it gain momentum going forward, but that does not seem to have happened.

"Project Devil units still haven't shown much on the home page and obviously are not having the expected traction," according to Schachter.

Conversely, YouTube continues to sell its engaging "masthead" ad unit almost every day and appears to be gaining further traction with a broad set of advertisers.

Media ads accounted for 50% of YouTube's total home page ads in the period -- up from the second quarter's 42% as the summer movie season drove ad spend.

Overall, Macquarie suggests that YouTube is continuing to take share from the traditional portals.

Separately, MSN trends have generally been stable for the third quarter, with improvement in some measures of ad/advertiser quality and modest deterioration in other areas.

MSN sold Oversized/Custom ad units 13% of the time in the first half of the third quarter -- versus 15% in the second quarter, and 17% in the first -- and saw a sequential increase in typically lower-priced non-rich media ads on its home page.

Finally, results through the first half of the third quarter were a mixed bag for Yahoo, with improvement by some metrics but continued weakness in other areas. While Yahoo was able to increase its proportion of oversized/custom ad units to 25% -- from 16% in the second quarter -- the company had its highest percentage of what Macquarie defines as direct response ads -- 42% vs. 38% in the second quarter and 35% in the first quarter -- which are typically lower-priced.

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