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AOLs decision to lay off 2,000 workers to realign the companys cost structure is the latest move for a company that wants to get lean and mean to mix it up with Google, Yahoo and Microsoft in the online advertising space.
AOL CEO Randy Falco, who unveiled the layoffs in an internal memo leaked to the press Oct. 15, said the move will help AOL operate its Platform-A, Publishing and Access businesses “as efficiently and effectively as possible.”
Some industry watchers say the move leaves AOL, which is moving to New York from Dulles, Va., next year, better positioned to insert itself into the mix with Google, Yahoo and Microsoft in the multibillion-dollar online advertising market.
“I think AOL sees the fragmentation of user traffic to more destinations and realizes its strength is in providing a distributed, multiplatform, ad engine … hence the restructuring today,” IDC analyst Rachel Happe told eWEEK.
AOL is placing its online advertising bets on Platform-A, which includes a bounty of advertising options led by third-party ad network Advertising.com, along with behavioral targeting leader Tacoda, mobile advertising specialist Third Screen Media, video ad platform Lightningcast and global ad server Adtech AG.
Read more here about AOLs Platform-A.
Platform-A is an attractive offering for advertisers, analysts believe. JupiterResearch analyst David Card said Advertising.com is one of the most successful third-party ad networks, perhaps second only to Googles search network.
Solid ad platform notwithstanding, challenges remain. AOLs second-quarter revenues fell by 38 percent to $1.25 billion from the year-ago period thanks to a 55 percent drop in subscription revenues, while the 16 percent growth in ad revenues came in below the 20 percent rate Wall Street analysts expected.
Card said the big question mark is AOLs core portal business, and whether or not the Time Warner subsidiary makes sites such as AOL News, Music, Moviephone and TMZ stand on their own.
“Clearly they need to start growing their user base again or getting a lot more time spent or engagement or page views or whatever metric you want to get out of the existing user base,” Card said. The analyst also wondered whether AOL will see the usual solid results after it winds down its access business, which boasts heavy AOL portal users.
Another question mark is whether or not AOL will flip its search strategy. While Google, Microsoft and Yahoo offer their own search engines, AOL has used Google as the search engine platform and as the paid search listings provider across its AOL, CompuServe, AOL.com and Netscape since May 2002.
Spokespeople for AOL and Google said both companies continue to be happy with the deal and neither would comment about any change in that relationship.
Theoretically, this relationship could persist in a cooperative competition state. After all, search rivals Google and Ask.com have a bit of a parallel arrangement; Google is the paid search listings provider for Ask.com.
Ask.com provides its own search, but the company hasnt said publicly whether or not it will renew its current agreement with Google, which is set to expire at years end.
Click here to read more about Ask.com and its collective search effort.
Card quashed the speculation. “I wouldnt compete with Google,” Card said. “I think they have a pretty good deal with Google, and if they dont they can always cut a really good deal with MSN or Yahoo.”
Meanwhile, IDCs Happe said AOL will also recognize that advertisers want performance-based ads, meaning the subsidiary will need to be clear about whether it is an advertising solution or a publisher because it will be hard to be both.
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