Once the darling of the early internet, AOL is still working to prove it can profitably operate without its subscription dial-up service. Can a company with that still relies on legacy dial-up subscriptions that account for most of its profit, really call itself a media or advertising company?
As of November 2014, its 2.27 million legacy dialup subscribers were paying an average of $20.86 a month for internet access, with an average subscription length of 14 YEARS. Despite experiencing its lowest subscriber churn rate in years of -9% (Q3-14), it continues to lose them at a rate of 245,000 members a year. These legacy subscriptions are an easy source of revenue for AOL (and most of its profit), but the company isn’t interested in functioning as a purveyor of outdated technology.
This is what has led to its doubling-down on its advertising technology in recent years. AOL aggregated a number of acquired advertising technology pieces and combined them with its existing advertising infrastructure. Advertising customers can now purchase ad inventory from AOL with a single interface for automated ad buys across all of AOL properties, branded as “One by AOL.” According to Adage, “The strategy appears to be working. Emarketer expects AOL’s display ad revenue to grow 13% this year, to $860 million. That growth is being driven by ad-tech.”
AOL is clearly successful growing its advertising business through its technology investment. The company brought in $473M in global advertising revenue during Q3 2014, up 18% compared to Q3 2014, even as it works to provide a stronger strategy and platform for popular titles such as The Huffington Post, Engadget, and Mapquest still operating under AOL’s umbrella.
AOL seems to be turning a corner, yet this begs the question: Is AOL betting on a future as an advertising platform a warm-up for a potential sale? Rumors as recently as last week of mergers with Verizon and Yahoo have fueled speculation.
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In the end, this may be the way out for a company that’s tried in earnest but has struggled to leave the legacy of its past behind. Despite denials to the contrary, the recent focus on ad-tech may indeed be an exit strategy after years of trying to turn itself around.