Jonathan Miller, CEO of AOL, indicated last weekend in an interview with German newspaper Die Welt that the company would most likely shrink for the next two years as it makes its transition from a paid-subscription Internet service provider to a portal offering free products.
AOL is embracing this new business approach in order to stop the bleeding. As canceled subscriptions have mounted in recent times, the Time Warner arm is seeking to win back old customers and new ones so that they have more eyes that they can offer to advertisers.
Neither AOL’s move nor Miller’s admission are shocking, though it will certainly require a certain amount of patience on the part of AOL stakeholders, including Time Warner.
But there are already positive signs for the Internet company, as online advertising revenues increased 40% to $449 million during the second quarter of this year. This came at the cost of a 2% drop in sales for AOL, due to the continually declining subscriptions they are experiencing.
Miller says that AOL makes profits in excess of 50% of sales in its advertising business, as opposed to the profits of 20 to 25% of sales in its Internet access business.
AOL has recently sold its access businesses in Germany, France, and Britain for almost $2 billion total.
“In the past, we invested a lot of money in the infrastructure for the access business and in winning customers. That’s over now. Later, sales should rise again,” said Miller in the interview.
Miller also indicated that AOL is aiming to increase its presence in European markets, with hopes to have its own portal and ad network in place within the next five years. He also said that the company would look to acquire European companies as well.
With regards to consolidation, AOL will “definitely” be a buyer according to Miller, though the company will not be making Google-like splashes.
Miller said that AOL had talked with social networking giant Facebook, but refrained from bidding for the company, which has been offered around $1 billion from Yahoo!.
On Sunday, Miller also hinted at the increasingly “interesting” possibility that AOL could be sold off by Time Warner, which merged with the ISP in 2000. According to Miller, the possibility is now a topic of discussion with the Time Warner board, thanks to AOL’s sale of its access businesses in Europe.
“It’s possible, going forward. It’s not a discussion that Time Warner has a problem with understanding or engaging in,” he said. “Until we were on this present course, it wasn’t even the right discussion. Now it becomes interesting.”
Miller also added that he is confident that if Time Warner decided to put up AOL for sale, it would not take long for the company to be scooped up by a suitor.
David A. Utter at WebProNews indicates that a logical buyer would be Google, who made a hefty investment in AOL in late 2005, beating out Microsoft.
Source:
http://news.yahoo.com/s/nm/20061021/wr_nm/aol_sales_dc;
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X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA–
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/
2006/10/22/cnaol22.xml
http://www.webpronews.com/insiderreports/marketinginsider/
wpn-50-20061023TimeWarnerToAOLSeeYa.html
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