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AOL Strategery August 2, 2006

Posted by David Card in Media.

They’re really giving it away. AOL will not turn off its access revenues overnight, but it will offer its application, e-mail address, parental controls, spyware protection & other safety software, and, presumably KOL (not mentioned by name) for free. This is a compelling offer for people who liked the service, but were going to broadband and didn’t want to pay extra.

I doubt AOL will get many new users to use the integrated application, even though it is a good product, and I’m not sure just how many of the the 5-6M members who left in the last two years will download the app, get their e-mail address back, and use the package.

New data & commentary:

– 36% of AOL’s network visitors (mostly the paying members with the application) drive 80% of the page views (and ad revenues). That’s why they’re doing this. The big challenge remains rebuilding the network — ie driving up page views per user — for folks that don’t use the walled garden. That’s always been the big challenge.

– AOL members of 2+ years tenure only churn at an average monthly rate of 2%.

– AOL has raised its ad revenue per thousand pages (RPM) from $3.19 in 2Q04 to $3.60 in 05 and $5.71 now. That’s why it’s doing this now. It feels its ad salesforce and infrastructure can compete at scale with Yahoo and MSN. My take: we’ll see. Yahoo is very strong; MSN’s got the strategy and team in place, but is re-inventing software and its very mission, and is vulnerable.

– AOL will market its offer starting now (no e-mail in my inbox as of 1.30pm) but mostly in September. It’s not going to just stop billing you, of course. It’s in the process of training its call centers.

– Ad growth was 40% (very good), and all categories — search, display, and Ad.com — each grew over 30%. E-mail ads (intro’d at end of Q) weren’t particularly material to results, as was video inventory, though that is ramping up. Video CPMs are “in the range of what good cable nets can charge” on TV.

It thinks its members are good prospects for triple play bundles, and will court (again) broadband ISPs as partners for co-marketing. No particular advantages with Time Warner Cable, as usual, due to corporate dysfunction even playing fields.

I still think AOL needs to make AOL.com a success — not just drive traffic from IM, Moviefone, Mapquest, etc. It needs that hugely valuable ad inventory for big deals, and a powerful promotional vehicle for traffic-driving.

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