[Sigia-l] AOL Stops the Pop-Up

[Gretel Stock]

Here is the AOL article from the WSJ yesterday . . .



American Online will Put Down it's Pop Up ads

By Julia Angwin and Mylene Mangalindan 
The Wall Street Journal 


AMERICA ONLINE is pulling the plug on its most annoying feature: pop-up
ads. 
The ads, which tend to take over users' computer screens, have become a
consumer pet peeve. Advertisers have grown increasingly wary of the
budding backlash. 

The move to stop selling such ads is part of AOL Time Warner Inc.'s
campaign to revitalize its online service after years of benign neglect.
During the dot-com boom, the company became intensely focused on selling
ads, but now that advertising has dried up, the company is trying to
invigorate its service so its 35 million customers won't defect. Among
other measures, yesterday it launched its new 8.0 software. 

The loyalty of its customers is increasingly crucial to America Online
as it faces mounting competition from Microsoft Corp., Yahoo Inc. and
high-speed Internet providers, as well as internal pressure from its
parent to stop crimping the entire company's profits. The unit's
earnings before interest, taxes, depreciation and amortization, or
Ebitda, this year are expected to be $1.7 billion to $1.8 billion, down
from $2.9 billion last year. 

America Online began selling pop-up ads in 1995. The ads are the first
thing subscribers see when they log on and the last thing they see
before they log off. They are often pitches for items such as computer
accessories and language lessons -- and don't make up the core of
America Online's advertising revenues. 

Abandoning sales of these ads will cost AOL Time Warner about $30
million in Ebitda, the company estimates. But the move doesn't mean that
America Online will refrain from pitching other types of advertising,
such as banner ads. Indeed, America Online Chief Executive Jonathan
Miller said the company hopes to make up the difference in profits by
selling more targeted advertising. For instance, America Online has
attracted sponsors such as American Express Co. to promote its
"Sessions at AOL" live online music show. 

The pop-ups won't disappear right away. America Online says it will stop
selling them, effective yesterday, but still has to honor commitments to
advertisers who paid for them. Also, Mr. Miller reserved the right to
run pop-ups on behalf of America Online and its sibling companies at AOL
Time Warner. "We still want to talk to our members," he said. 
Furthermore, America Online subscribers may still see pop-up ads on
other Web sites they visit when logged on to the Internet via America
Online. Mr. Miller said America Online isn't yet ready to follow the
lead of competitor EarthLink Inc., which has a feature that allows its
subscribers to block nearly all pop-up ads that appear on the Internet. 

At least some America Online subscribers were pleased. "I'm 100%
supportive of getting rid of them," said Corinne Brier, a 24-year-old
New York singer and longtime America Online subscriber. She said she
particularly hated the ads that popped up right before allowing you to
disconnect. "They were a pain." 

Consumers take a dim view of pop-ups, according to research from Dynamic
Logic, a market-research firm. Only telemarketing is considered more
distracting and less desirable among ad mediums like television, direct
mail, newspapers and magazines, according to the November 2001 study.
Big advertisers have also shied away from pop-up ads for fear of irking
customers. Only 9.2% of all companies advertising online use pop-ups,
according to a Nielsen/NetRatings Sept. 4 report. 

Mike Gallant, an analyst at CIBC World Markets, said a lot of the pop-up
ads were part of ad contracts signed a few years ago, now in the process
of expiring. "It's questionable what the appetite" is for the ads as AOL
attempts to renew the deals, he said. 

Mr. Miller said America Online's advertising revenues are likely to fall
again next year but didn't say by how much. This year, AOL has said its
online advertising revenues are likely to fall as low as $1.6 billion,
compared with $2.7 billion last year. Analyst Jessica Reif Cohen at
Merrill Lynch estimates America Online's ad revenues could fall to $1.2
billion next year. 
Some advertisers worried that America Online's decision might have a
ripple effect in the industry. Mark McLaughlin, managing director of
Euro RSCG Circle, an online ad unit of Havas SA, said that if all the
major online portals make this same decision, many advertisers would be
forced to go back to using the much-maligned banner ads. 

Microsoft Corp.'s rival MSN Internet service says it will continue to
run pop-ups with a low frequency. Yahoo Inc. also uses pop-ups on a
limited basis, mostly for surveys after a consumer completes a shopping
purchase or related to movie ads. This year, the Sunnyvale, Calif.,
company has shifted to using more rich-media and animated ads that are
embedded right into its Web pages as it strives to increase the type of
ads that advertisers are gravitating toward. 


Gretel Stock-Kupperman
Senior Research Manager
Whitney Group
312-587-3030
www.whitneygroup.com