AOL Guns for Comeback in '05

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America Online is betting on the “network effect,” audience growth and broadband-oriented content and ads, as it engineers a comeback within the advertising community in the coming year.

“Our big goal for next year, really, is to continue to expand the audience of AOL and AOL Inc.,” said Mike Kelly, president of AOL Media Networks. “Our ability to succeed with advertising is much more dependant on our audience and not so dependant on our subscriber count.”

The company is struggling to catch up with Yahoo! and MSN. Both were quicker to recover from the dot-com crash and have generally been viewed as more attractive to advertisers.

“For a long time, AOL was still kind of hoping it was 1999 again,” said Jeff Lanctot, vice president of media at Avenue A/Razorfish. “They are paying right now for the mistakes of the last three, four and five years.”

Lanctot cites three challenges the company’s had: poor client service; a lack of IAB-standard and rich media products; and the difficulty of trafficking and tracking ads on AOL’s proprietary Rainman platform.

This year, AOL began to address these issues. It’s reorganized its sales force, introduced IAB-compliant ad units, partnered with a number of rich media providers, and began developing new content and properties in HTML, rather than in Rainman.

“Those kinds of things have been going on all year and, frankly, prior to me getting here,” said Kelly.

Now, AOL executives contend, the company is well positioned to grow its advertising revenues at least as quickly as the rest of the industry will in 2005. (Online advertising is expected to grow 27 percent next year, according to a JupiterResearch forecast.)

AOL’s first priority is to develop a Web audience outside the AOL service. It’s launched a shopping search site; will launch a travel search destination in partnership with Kayak.com; and it plans to launch a new AOL.com next year. In developing the new portal, AOL drew heavily on AOL’s experience with its proprietary service.

“It’s going to have the characteristics, the quality,” said Kelly. “We’re going to take the same quality to the Web. That should be a differentiator.”

The company will also take learnings from two years of operating AOL for Broadband, and work to attract a broadband audience.

“We’ve built a product specifically for a broadband household which is really almost unique,” Kelly promised.

He also pointed out AOL’s longstanding efforts to acquire music programming and entertainment content, an initiative in which its relationship with parent company Time Warner should provide an advantage. Competitor Yahoo! recently began to focus more energy on entertainment content, last week signing a high-profile deal with JibJab Media.

Kelly says the first candidates to join AOL’s Web audience will be users of other AOL products, including its instant messenger client.

“We need to really operate as a network,” he said. “Can we make AOL.com relevant to AIM users? It’s a little bit of a different perspective.”

Avenue A/Razorfish’s Lanctot believes AOL is making all the right moves, and says its success depends on its ability to keep its focus — especially on client service issues.

“I’d say I’m more optimistic about AOL now than I have been in the last three-plus years,” he said. “I think they have slowly made strides. I think Mike Kelly is doing a good job. I think it’s all coming to a head now, which is the reason for my optimism.”

Lanctot also believes advertisers are looking for another viable portal Yahoo! and MSN have seen success, and raised their prices accordingly. “I think there is this hunger for another option,” he said. “So when you couple that with the improvements they’ve made in all of these areas, we could be looking at AOL’s comeback year, its return to prominence.”