NEWS

WIRES

OTHER

Old Business Models, Even in "New Media" World - Being Blown to Pieces

By Marc Wilson

Online advertising is projected to total $12.5 billion this year, and climb to $25.9 billion by 2011. Old business models - even those in the "New Media" world - are being blown to pieces as a mad scramble grows to get a slice of this growing pie.

Major companies are changing their baseline business models. Time Warner's board of directors was expected this week to approve a plan to give away AOL's high-speed Internet service.

In the newspaper world, this is tantamount to a daily newspaper going to free circulation in an effort to reverse long-standing circulation declines and sell more advertising.

AOL, once the icon of Internet innovation, has steadily been losing subscribers and stock valuation to lower-cost and faster competitors. In an effort to remain a major national player, AOL will offer its services for free, and hope to sell enough advertising dollars to make up the difference.

AOL's dramatic change comes as major advertisers move significant portions of their budgets to online. For example, Ford Motor Co. will this year spend 12 percent of its overall North American marketing budget on online efforts. Ford said the total is likely to climb to 15 percent next year.

"Digital is fundamentally different than any other media simply because you can measure the exact impact of every ad..., said Tom Wennerberg, Ford's manager of customer relations. "This is not to say that traditional marketing doesn't have its place. It remains our biggest expenditure, but the dynamic is changing..."

By going free, AOL will lose some $2 billion a year in revenue and $250 million in earnings, according to a Merrill Lynch analysis. AOL may be able to cut marketing costs by $1 billion a year.

AOL was once a leader in the "New Media" field. Now it has become "old media in the New Media" world, and is trying to adapt.

AOL's struggles began when the so-called Web 2.0 emerged. Web 2.0 is tied largely to the emergence of search engines, especially Google and Yahoo! The Internet Advertising Bureau reported that search now accounts for 41 percent of online advertising, while display ads were at 34 percent. Customers don't go to destinations such as AOL and newspaper web sites as much as they once did. Now they let search tools find the content they want.

The average local newspaper Web site lost more than 3 percentage points of advertising share in 2005, according to Borrell Associates. Most of the loss was gained by search companies.

The galling issue is that content providers (including newspapers) are losing market share and ad dollars to companies like Google, which simply indexes content providers' content.

It's not just New Media giants like AOL that are looking at new strategies. As newspaper stock prices tumble and revenues look shaky, virtually every newspaper executive I know is trying to write a new game plan. All kinds of alliances are being considered. For example, the Philadelphia Inquirer's new owners announced this week that they will partner with Monster.com - and leave Career Builder. Perhaps a one-day victory as customers learn they can bypass the Inquirer and go straight to Monster.com.

The Inquirer ownership is new, and not tied to legacy thinking. Maybe that's a good thing - but I doubt it. Newspaper executives need to use their experience, study the new landscape hard and make good, tough decisions in hard times. But they must understand: Changes must be made.

(Marc Wilson is ceo of TownNews.com and president of The Job Network. He is reachable at marcus@townnews.com.)

alan@newsblaze.com