AOL

Most people first ask if AOL still exists. Surprisingly, it does, and it closes about $900 million of advertisement revenue every year. When I first joined the company about 2 years ago, AOL had just transitioned from being subscription based internet provider to being fully supported by advertising revenue. It was a decision that many analysts hailed as a move that would break AOL. In addition, AOL lumped together with Time Warner hailed it as a money loser and talks of spin-offs and mergers were always present.

Last year, when Yahoo decided to reject Microsoft’s bid for acquisition, AOL then became the target for Yahoo and other smaller companies trying to compete with media giant, Google. Although no ground breaking news has occurred in the last two years, AOL has seen tons of transformations to improve its market share. There has been two CEOs (the current just left his SVP position at Google), multiple SVP changes, new company formations within AOL (I actually work for Platform-A, a company within AOL), many smaller companies were purchased, and a whole new working environment has surfaced here in the AOL campus that is focused on selling advertisements.

The online and business industry comprises of many of AOL’s direct competitors, the biggest of which is mighty Google with a market cap of 119,653.96 (Morningstar, 2009). However, Morningstar lumps AOL in the same industry as the parent company Time Warner, within the media conglomerates industry.

With day-to-day business operations, AOL should really compete in the same industry as Google since both business models are relatively the same. Some distinct differences between Google and AOL revolve around original content. Google is in the business of creating world-class products, like email, analytics software, search, and video and so on. No original content is written by Google. They don’t report the news, they bring you the news. Yahoo and AOL are both news providers with hired writers and reporters that write original content for their countless blogs and news sites. AOL runs over 300 blog/sites in their network. In addition, they own Bebo, a social networking site, TMZ, celebrity gossip blog, MapQuest, AIM, the instant messaging software, and hundreds of unique niche blog sites like Engadget, Black Voices, Lemon Drop and Asylum.

Since Time Warner owns AOL, the grouping of competitors is difficult to asses. As a company, Time Warner has a market cap of $26.6 billion, whereas Yahoo is at $19.5 billion. The industry average is around $3.9 billion. Google operates out of the Online/Business Industry and their market cap is $119 billion, and the industry average is $630 million.

The data for the last 5 years have presented some fluctuating numbers for Yahoo and Time Warner. In the last year, the industry had a -26.28% total return and a -8.66% five year return. In the same light, the online/business industry produced a -18.01% total return last year and 24.70% total return in its 5 year average. Obviously, the current economy has hit both industries.

The media conglomerate industry has many strategic challenges. Time Warner faces three sides to its business: its cable division, its publishing division and AOL. Due to being lumped in one package, AOL fails to stand apart from a staggering Time Warner business. Time Warner alone produced -27.76% return last year and -8.67% in five years. Yahoo has done much worse. They produced -50.23% return last year and -12.25% in five years. Yahoo has been trying to rebuild its company and thus the terrible total return numbers.

The online industry is constantly faced with new technological challenges and advancements. The industry must try to figure out ways to drive advertisement dollars despite a poor economy. In fact, just yesterday, AOL became one of the first publishers to sell advertisement on their logo. Check out this story in Ad Week from Brian Morrissey: http://www.adweek.com/aw/content_display/news/digital/e3i415aa88a9b3254d9261bf3fece7c6e0a. Seth Greenberg, director of online advertising and Internet media at Intuit states that the industry is becoming competitive and it is fighting to attract marketing dollars (Morrissey, 2009).

The industry is focused on unique visitors and page views, and as a result, the industry is figuring out ways to connect with consumers in more ways than one. This process involves creating customer based products, increase user engagement, and interact with customers with content that brings value. Collectively, new technologies and new products are what will excel one publisher with another. AOL is involved in a 3 year revamp effort to bring more value for users through their publishing networks. In fact, the whole industry is learning other ways to interact with consumers that no other medium can. The industry attracts over 120 million people daily. AOL is among very stiff competition to create value in their products in order for users to return daily. The end goal is to attract as many eye balls as possible, and once you acheive that goal, attract the most money from advertisers.

References:

Morrissey, B. (2009). AOL Morphs Logo into TurboTax Ad. Ad Week. Retrieved from

the World Wide Web on April 16, 2009 from:

http://www.adweek.com/aw/content_display/news/digital/e3i415aa88a9b3254d9261bf3fece7c6e0a

Morning Star. (2009). Stock Industries. Morning Star. Retrieved from the World Wide

Web on April 16, 2009 from:

http://news.morningstar.com/stockReturns/CapWtdIndustryReturns.html