Thursday, August 3, 2006

Small(er) is Beautiful: AOL to Focus on Ad Revenues

BusinessWeek's article on the ins and outs of AOL's plans to drop connection-based subscriptions in favor of an ad-driven revenues covers the main points of the decision but The New York Times' coverage cuts to the heart of the matter when it quotes Morris Mark of Mark Asset Management: "“It's something they should have done two or three years ago," Mark said. Right he is. Major media companies such as AOL fussed and fumed about synergies and trying to put a garden wall around audiences that could not be serviced by captive content effectively; now AOL and others have to be content with a less-dominant position which, while certainly profitable, seems to be a beat behind the times.

The long-term question for many media companies right now should be not how to maximize ad revenues but how to develop buffers into revenue models that will protect them in the next inevitable ad downdrafts. There's plenty of room for growth for online ads in an infinite sea of online page inventory but as ad spends become dispersed into more and more discrete channels via ad networks to follow the far-ranging interests of online audiences new plans for premium components must be developed fairly rapidly to weather the inevitable shifts. Loyalty through online communities will be a key anchor for introducing new premium components, which places AOL in a fairly good position through services such as its instant messaging.

I think that you'll see that formerly dominant portals such as AOL will need to become more adept at premium profits through user-generated and user-syndicated content than Yahoo! and other portals that have the leverage and position to develop their own ad networks more effectively. Right now the rising tide lifts all boats in the ad world, but prepare yourself for the sea shifts ahead.
Post a Comment