AOL’s slight stumble on display ad sales in Q1 was due to “distractions” the company experienced in Q4, as the company continued to refine its content strategy and place the Huffington Post brand on top of its content offerings and the company continued to refine its content and sales strategies.
CEO Tim Armstrong told AdExchanger following the company’s Q1 earnings call this morning that he was looking to get the display revenue sales back on track, though he indicated that significantly improved results might not show until the second half of the year, suggesting more of the same for Q2’s earnings.
“We have been moving from a traditional display model into things like Project Devil and video, which we’re in the process of scaling up,” Armstrong said. “The traditional display market is not a growth market. We can do a better job serving our customers and users by having better advertising. We have been working on fine-tuning our strategy, which went through a number of distractions last fall. We got away from the data-centric, ROI and category-specific focus you need in the display market.”
De-emphasizing the “traditional display” market of static banner ads in favor of the larger, more dynamic brand-friendly Project Devil ads is what Armstrong means when he talks about pursuing a new model. Devil ads are meant to embody the “best of both worlds” of online advertising. The data embedded in the placements allow marketers to see how an ad is doing in real-time, while the larger canvas allows for bolder, more creative ads.
“I was having lunch yesterday with a major agency CEO and we spoke about this alignment that’s happening in display right now,” Armstrong said. “If the performance space is going to grow, and if the brand marketplace is going to grow substantially, it has to involve data as an underlying layer supporting creative brand advertising and user engagement.”
As Facebook and Google take a larger share of the display market, AOL needs to attract more blue chip advertisers for its Project Devil ads, which have been vaunted as a game-changer for over a year. Although Project Devil received the imprimatur of the Interactive Advertising Bureau as a “rising star” ad format in February 2011, marketers and agencies have been slow to embrace it en masse.
So what’s different today from last year? AOL, along with other display stalwarts looking to blunt the encroachment of Facebook and Google, have turned to Digitas’ NewFront presentation series last month as a platform to attract the attention of TV ad spenders at the early stages of this year’s broadcast and cable upfront market.
“I’ve seen a major change in the way agencies and marketers plan their budgets in terms of TV and online,” Armstrong said. “In many cases, they’re putting web and TV together. And while it will take some time to work out the issues of physically making that process more seamless, this is the year it really starts to happen to move beyond a promotional online ‘upfront’ and into what I would call an ‘industrial upfront,’ where actual dollars are being spent right on what is being shown.”
In addition to using video to help grab some TV ad dollars, AOL continues to work the mobile angle. It’s bringing Project Devil ads to mobile in a few weeks to capture the growth of mobile, which is still a fraction of overall online ad spending.
To put AOL’s challenge in perspective, the overall U.S. online ad market grew 22.7 percent to $8.9 billion in Q1 2012 over the same period in 2011, according to eMarketer. But a rising tide does not lift all boats, as the online ad researcher noted that AOL’s share of U.S. online ad revenues is declining.
The company’s share of online ad revenues in the U.S. slipped to 2.8 percent in 2011, down from 3.4 percent in 2010, according to eMarketer. While the online advertising market is expected to grow 23.3 percent to $39.5 billion this year, AOL’s share of revenues will fall shrink to 2.4 percent, eMarketer estimates.
Much of this decline is due to the changing display advertising market. AOL’s share of U.S. display advertising revenues is expected to fall to 4 percent in 2012, from 4.3 percent in 2011. Facebook, by comparison, is expected to see its share grow to 16.8 percent this year, up from 14 percent in 2011. The display advertising market in the U.S. is projected to rise 24.1 percent to $15.3 billion in 2012, eMarketer estimates.
Hence Armstrong’s statement about the diminishing value of the “traditional” display business. So what impact will Project Devil have? Probably not much in the near term, but observers are used to the ups and downs the company has had for the past several years. The idea of taking action as mobile ads do heat up may be enough to assuage some AOL investors, even as the company’s leaders continue to face challenges from recalcitrant shareholders like hedge fund Starboard Value, which has battled AOL executives for greater control.
Armstrong offered his pitch for the new mobile offering, saying, “Project Devil for mobile is a screen-first initiative, meaning that the ads have been built specifically for someone on-the-go, with a business-card-size screen that offers the same engagement rates as Project Devil ads do on the PC web. We will be launching this in a few weeks and you will see that ads that will help establish new performance levels for mobile advertising.”
By David Kaplan
