AOL ad strategy hits its revenue

NEW YORK (AP) — AOL made key mistakes that pushed down display-advertising sales and resulted in the Time Warner Inc. Internet unit’s first quarter of flat ad revenue since it began staking its future on the boom in online ads, executives said yesterday.

AOL’s troubles integrating $1 billion worth of corporate acquisitions into a single “Platform-A” should serve as a warning for Microsoft as it pursues an unsolicited bid for Yahoo now worth more than $40 billion.

“If Microsoft does buy Yahoo, a much larger company to digest [than the ones AOL has acquired], it will be many quarters” before the units operate tightly, said David Hallerman, a senior analyst with the research group eMarketer. “It’s so hard to make that kind of change, to really integrate, when there have been all these silos.”

AOL was formerly based in Sterling, Va., where most of its operations still remain.

Overall, AOL revenue fell 23 percent in the three months ending March 31, compared with the same period last year, according to Time Warner. With advertising making up only half of AOL’s revenue, the 1 percent growth in advertising was not enough to offset the 38 percent plunge in subscriptions. Profit at AOL fell 25 percent in the quarter.

Parent Time Warner earned $771 million, or 21 cents per share, in the period, down from $1.2 billion, or 31 cents, a year ago. Revenue rose 2 percent to $11.42 billion from $11.18 billion.

AOL’s 1 percent increase in advertising also was low compared with its rivals. During the first quarter, Google Inc. saw a 40 percent increase in online ads, Microsoft a 39 percent jump and Yahoo 7 percent.

The company suffered from the loss of an exclusive partnership with a major advertising customer.

And even as AOL set audience records in March, display advertising on AOL-owned sites — historically its revenue staple apart from its plummeting Internet access business — declined 18 percent.

Time Warner blamed challenges merging Tacoda, Quigo and other acquisitions with its long-standing Advertising.com business.

“We didn’t integrate our Platform-A acquisitions fast enough,” said Jeff Bewkes, Time Warner’s chief executive officer. “That created a sales channel conflict.”

In recent weeks, AOL has extended Tacoda’s ad-targeting technologies across its entire platform, introduced more automated tools for advertisers and partner Web sites and reorganized its ad sales teams. In March, AOL elevated Advertising.com President Lynda Clarizio to run the entire Platform-A business, ousting Tacoda’s former chief.

Mr. Bewkes said the changes should allow advertisers for the first time to buy ads on both AOL and partner sites at once, an option long available elsewhere.

“We’re executing these changes now, so we don’t expect to see the full benefits in the current quarter, but we’re optimistic that this dislocation is largely behind us,” Mr. Bewkes said during a conference call yesterday.