Commentary

Advertising's Potential To Pacify Portal's Pains

"We are not trying to build yesterday's portal," said Ron Grant, AOL's president. "We are trying to build a network of sites that users can combine or do whatever they are most comfortable with."

The above quote is from a recent New York Times article by Miguel Helft that reports on AOL's recent revenue woes. The two main sources of AOL's troubles: declining dial-up revenue (the one everyone expects), and slowing growth in online advertising revenues (the one fewer expected). While it's great for most everyone reading this article (at least those who don't work at AOL's dial-up division) that broadband adoption continues to accelerate, it's definitely a topic that's been discussed. The more interesting issue for our forum here breaks into two parts, which in reality are the exact same issue:

1.  The reality that at AOL, Advertising.com is the tail wagging the dog, and eventually may become the whole dog when you see quotes like this: "The brand that we build around Advertising.com might become more important than the AOL brand itself," said Randy Falco, AOL's chief executive.

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2.  The issue underscored by the opening quote by Ron Grant and nailed by Jordan Rohan, an analyst with RBC Capital Markets, that traditional portals are losing audience to social media. "Just like Yahoo, AOL is fighting MySpace, Facebook and others for audience and ad dollars, and those are tough competitors," said Rohan,

The realization that portals don't necessarily hold the same value they once did is as important for advertisers as it is for the portals. Google, AOL and Yahoo! themselves are trying to push out services once only found on their sites to their network of publishers -- each hoping in the process to increase their own advertising inventory. Once enough of these services are adopted by more niche sites, why would a critical mass (by traditional media standards) of people use one portal when they can make their favorite Web site their portal? And, I know you have thought about the next generation making their social media site of preference their online launching dock of choice. It's not only possible, it's likely.

The bad news for advertisers: portals were it -- the first, last and only online media that behaved like traditional media as a large reach single buy. So the perceived shortage of branding-appropriate inventory will only worsen given the conflicting decrease of supply (again perceived) and the increasing demand. Nice pricing pressure for the portals in the short term, which they have been exploiting, but increased prices on diminishing inventory isn't a great game to play.

The answer to advertisers and portals woes: if you can't consolidate the audience, at least consolidate the inventory. Every major portal will/should look to its content production, aggregation and services to attract publishers to its advertising network, but in the end it will all come down to the best monetization and value for the publishers and advertisers respectively. This means potentially great things for the publishers of all that branding-appropriate inventory across the fragmented social media landscape. So AOL Advertising.com it is, right? Perhaps. The question becomes can Advertising.com replicate the ease of media buying once possible when buying on AOL itself? And, can Advertising.com crack the "branding across fragmented media" conundrum.

What Rohan and other analyst know is that incremental improvements in performance advertising offer only slight bumps in revenue generation (see: slowing ad network growth and Panama). But the game changer will be the ability to deliver value to brand marketers across fragmented/social media. Cracking this will require some pretty significant innovation in online advertising's targeting, delivery and measurement metrics, as well as redefining the nature of the relationship between agencies/advertisers and online brand advertising network, which is the really hard work.

But the reward is infinitely larger than most people understand, because addressing these issues will lead to a google-like result. Why? Because, publishers, in the end, are focused on monetization. The ability for an ad network to tap branding budgets would increase publisher monetization far more than an incremental increase in performance advertising. The increased monetization for publishers by the first successful brand advertising network will in turn attract more publishers. More quality publishers will mean the successful brand ad networks can better serve the advertisers, and in turn attract more budget. And so the circle will continue, barring major strategic mistakes.

AOL is right to be betting on Advertising.com as its horse, but the market has yet to see the goto.com breakthrough -- never mind the AdWords breakthrough -- for brand advertising.

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