May 25th, 2007
AOL announced a strategy to increase ad revenue by reducing clutter in order to attract higher CPM ads, i.e. they’re going run fewer ads (via MediaPost):
The counterintuitive plan–presented Thursday by the company’s Chairman and CEO Randy Falco and Chief Operating Officer Ron Grant during a Goldman Sachs conference–is intended to make AOL a less cluttered and more inviting environment for users, and a more effective platform for advertisers.
Grant described it as the “uncluttering of the AOL environment.” And while the inspiration for the initiative was putting the consumer first, Grant insists it also has a positive impact on advertisers.
“Our ads are delivering better value for our advertisers,” he said.
AOL is betting that they’ll net more revenue by charging a higher CPM across a smaller inventory — it’s simple algebra. Here’s an example of the type of ads that AOL is aiming to replace:
It’s a good bet that LowerMyBills.com and free credit reports are not high CPM ads. What AOL wants — along with Google, Yahoo, and Microsoft — is the premium brand advertising that is still spending the lion’s share of ad dollars in print and TV. To get premium dollars, you have to create the perception of a premium context, and nothing hinders that perception like clutter.
The reality is that the market for brand advertising is still very “squishy,” it’s more about perceptions and relationships than hard ROI. That’s one reason why Google has struggled with brand advertising and had to buy DoubleClick to acquire the relationships with media buying agencies that control brand advertising dollars — and why Yahoo and Microsoft followed suit.
Brand advertising will be a big driver of growth for online advertising, and the challenge for online media companies is to optimize ad sales in the fuzzy middle between online-native direct response and offline-native brand advertising.