AOL Closes In On $1 Billion In Ad Revenues
- by December 7, 2004
Parsons delivered the nugget to analysts and the media on Monday during a presentation at the UBS Media Conference. MediaDailyNews was curious as to how AOL tallied the figure, and went to Mike Kelly, president of AOL Media Networks, with our questions.
Kelly says the AOL division's revenues are derived from a combination of cost-per-click (CPC), pay-for-performance, and brand advertising, as well as revenues from AOL Europe. One-third of AOL's advertising revenue comes from search revenue via the company's relationship with Google, and through direct search from AOL, according to Kelly. That percentage is expected to grow, although it was unclear by how much.
Ad revenue from AOL's European business contributed another 15 percent of the pie, while the remaining 55 percent is a combination of CPC and CPM-based advertising. "The vast majority of CPM and search advertising revenue is driven from the AOL brand," Kelly notes, while 25 percent comes from properties including Netscape, AIM, and Mapquest. Advertising.com, which AOL acquired in June, contributed a portion of the 55 percent, although Kelly declined to specify the number or project what the business will contribute in 2005.
While Kelly acknowledges that AOL's CPM ad business is not as strong as Yahoo!'s, he maintains that it approaches the size of MSN's U.S. business. Analysts estimate AOL's CPM business at nearly $400 million. "We have completely rebuilt the advertising business--it's a real advertising business," Kelly says, referring to ad deals made in the late '90s, many of which resulted in an investigation of AOL's accounting practices.
In 2004, Kelly says, "there's not a marketer that we're not doing business with"--although he concedes that AOL's a year behind the competition in audience development, marketing packages, pricing, advertising, and turnaround time vis-à-vis deals. He's quick to point out that AOL is close to parity on a lot of things like compliance with Internet Advertising Bureau ad formats and rich media standards. Kelly says AOL is sold out on its broadband video inventory, an area that the company is working aggressively on--particularly in the areas of news, sports, and entertainment/music.
Kelly was tapped to help fix AOL's ad business earlier this year. A former Time Inc. executive, Kelly served a brief stint within Time Warner corporate as president of the company's Global Marketing Solutions Group, prior to hunkering down at AOL Media Networks.
With 100 million unique visitors a month to AOL Inc. properties, and 54 million uniques to the AOL service, according to comScore Media Metrix, AOL Media Networks wants to carve up and package those audiences to capitalize on advertising opportunities, including broadband video, in 2005. Netscape alone attracts 18 million uniques a month; Mapquest, some 30 million. "Their monetization is much lower than the AOL brand," Kelly acknowledges. Tracking usage patterns is key to figuring out how to monetize, and ultimately deliver, these users to advertisers.
AOL has struggled over the last two years or more to burn off a backlog of multi-year deals that by 2001 began to expire just as the Internet economy went south. It's the combination of those advertising, technology, e-commerce, and barter deals that led to probes by the U.S. Department of Justice and Securities and Exchange Commission into AOL's accounting practices. Published reports in recent weeks have speculated that a settlement of the pending cases with the government is likely by yearend.
Meanwhile, AOL spent the better part of 2004 increasing the flow of free content on its properties. In the spring of 2005, AOL expects to re-launch AOL.com for non-members--an effort that's considered a major linchpin in a strategy to attract millions of people to its programming, and thus millions of advertising dollars.
AOL, like Yahoo! and MSN, is poised to reap the benefits of an improving online advertising economy fueled, in part, by major marketers shifting dollars online and other forms of new media. Online ad spending was up 26 percent so far this year, according to TNS Media Intelligence/CMR. Parsons told UBS conference attendees that he expects online revenue growth at AOL to be on par with, or better than, the rest of the industry in 2005.
