AOL is still sucking wind (subscriber losses are accelerating), but its advertising growth is solid--up 26% year over year. This compares to 79% for Google, 34% for Yahoo, and a pathetic 7% for MSN. Those convinced that it is only a matter of time before MSN rules the world will no doubt find a way to explain why it is irrelevant that MSN has now lost its grip on "distant third place" in the web wars and is now No. 4 (by ad revenue).
According to TW CEO Parsons, AOL's ad growth was solid across all three categories: display, search, and Advertising.com. AOL's big challenge, of course, is to stabilize the subscriber base. Although AOL has an impressive amount of web traffic, advertising growth cannot continue at current rates if the subscriber base does not stabilize. AOL's critical weakness is that each subscriber generates between 4x-10x the monthly pageviews as each web visitor (for more info, please see a Cherry Hill Research report from November, 2005, accessible at the bottom of this post). This means that for every subscriber AOL loses--and it lost 835,000 in the last quarter--it must attract 4-10 times as many web visitors just to stay even (Cherry Hill Research estimates, see report above). This will be challenging, to say the least.
Henry : any link to sustain the factiods that you posted here ? tia
Posted by: /pd | May 03, 2006 at 12:08 PM
Henry,
In the last part of the last paragraph you explained already why this temporary advantage is not going to be a sustained one for AOL. This is a snapshot in business, AOL's days are numbered.
Posted by: Neal Lachman | May 03, 2006 at 01:44 PM
Agreed...but Microsoft's goal, presumably, isn't to be a distant No. 3. Also, there is a possibility that Google's involvement will start to change AOL's dependence on its sub base, as well as that the sub base will stabilize sooner than most people think.
Posted by: Henry Blodget | May 03, 2006 at 01:54 PM
Well, I think that it will take one step at the time. Never mind that MS is now in it for a marathon, as they said in the FT article I linked to yesterday.
There is an interdepence between GOOG and AOL, because both see some benefit in one another. However, AOL is not a long-term strategic partner, it is a marriage of convenience, but a short-lived one and the love's missing.
AOL subscriberbase will only decrease. In 2 or 3 years from now even the ones who don't want broadband will move up from dial-up. Also, the pricing and fierce competition from broadband providers will help dial-up users to migrate to broadband.
As for AOL's portal and AIM, these two assets will only lose ground to competitors who are already seeing traffic coming from AOL/AIM users. The danger with virtual businesses is that the userbase is an unloyal one and once users are convinced to try or switch to a competitor these users won't come back.
Posted by: Neal Lachman | May 03, 2006 at 03:25 PM
not relevant to the post but check out
http://www.adotas.com/2006/05/myspace-opens-door-to-sierra-mist-advertising-floodgates/
Is this the beginning for a huge runup on NWS?
Posted by: Anon | May 03, 2006 at 04:36 PM
Don't forget that AOL users tend to be "less experienced".
I.e they like to forward email chain letters, and they have a hard time not clicking on well blended ads.
Directing click happy AOL'ers at more ads (AOL.com properties are choked with ads) is what is driving ad revenues.
Posted by: Market Participant | May 04, 2006 at 04:22 PM
The AOL sub base should fall below 10mm by 2009 based on life-tables, cox regression proportional hazard modeling, and runge-kutta ODE (Differential Equations) unless it is made free.
Market spend is down about 67% from $1B to around $350mm. Retention spend is down $250mm to $17.5mm.
A new customer coming in the door stays 9 months with a $90 CPR with an average of about $18/mo in revenue with contribution margins of about 65%. AOL is dangerously close to hitting break even.
Soon only the online and Sign up by phone (DRTV) will remain as mROI thresholds will soon no longer work via Direct mail, Print, Inserts, Alt media, retail, partner, etc. This is what I called being choked out of the market.
Assuming AOL True Broadband (not sure if that means AOL for Broadband was actually a fake out) is not a hit and that MSO's other than TWX don't let AOL into their distribution AOL.
What has AOL done that has been innovative since the launch of AIM or unlimited dial up in the mid 1990s? Why would anyone bet that they can reverse this tide and increase ad$s at an increasing rate? Henry's note about the average aol sub generating 4-10x the page views is a serious concern.
Posted by: Burt Richardson | May 30, 2006 at 10:50 AM
hi. nice blog.
Posted by: robert | July 05, 2007 at 09:32 AM
4 business card design fresh idea in letterhead
9High dividend ETFs have lagged the market, especially popular DVY. This may be the best
argument yet for owning high dividend ETFs as they appear likely to cushion an equities fall
Posted by: rinainedy | July 17, 2007 at 09:19 PM