Posted August 20, 2007 2:58 am by with 3 comments

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It was this time last year that AOL jumped on board the advertising business wagon in an effort to tap into its 90 million monthly visitors and turnaround its wailing fortunes. But let’s face it – it’s like turning an oil-tanker in the English Channel!

A slowdown in advertising revenue to 16 percent growth last quarter (compared to 40 percent the previous) has left AOL execs split down the middle. Many are now raising questions about the transformation plan, while others accept that the prospect of exceeding the overall Online Ad growth rate is no longer realistic.

Despite eMarketer’s prosperous 28 percent growth forecast for the US, Internet usage trends indicate stormy weather for the portals – especially giants like AOL, Yahoo! and MSN. Analyst for RBC Capital Markets, Jordan Rohan, sums up the outlook:

Just like Yahoo, AOL is fighting MySpace, Facebook and others for audience and ad dollars, and those are tough competitors

Undoubtedly the biggest challenge is the defection of younger audiences to social networking sites, but coupled with a general user that is much more comfortable finding its own way around the Web, portals face an increasing identity crisis.

However, Randy Falco – AOL’s chief executive – rejects any notion that the slowdown is a bad omen.

In the first six months of the year, we have accomplished more in terms of a turnaround, in terms of fixing products and the platform, than in the past three years

AOL will press on with its plans to re-engineer – aiming to allow users to “widgetise” a choice of revamped channels and services to include in their own sites – such as blogs, homepages and networking sites.

AOL’s president, Ron Grant, is also insistent:

We are not trying to build yesterday’s portal… We are trying to build a network of sites that users can combine or do whatever they are most comfortable with

Aside from these improvements the recent slowdown in growth at AOL is a pivotal moment. Gordon Hodge, an analyst with Thomas Weisel Partners, said that if the slowdown continues, it could spell trouble for AOL’s turnaround plan.

I think the dial-up subscriber losses and profit losses could overwhelm the gains they could make from advertising

Only time [warner] will tell!


  • AOL and many other companies will face the brunt of a changing market scenario. Things are just not the same anymore with Web 2.0 and the vast difference in surfing habits.

  • Corporate America is living in a fantasy land. When did 16% growth become a problem? The unrealistic short-term expectations of shareholders have long been a problem for American manufacturing, and now that that sector has been bled white by a combination of shareholder greed, managerial incompetence, and a race to the bottom for labor wages, we’re seeing it come home to roost in the tech and media sectors.

    These people need a swift kick in the ass.

  • Could part of AOL’s problem be that they are still seen as an ISP and not a portal? When I think AOL I think of the many CDs that used to arrive in my mailbox every week. While they were trying to sign me up I found other portals to start my internet journey.

    How many people associate AOl with a portal?