JP Morgan analyst Imran Khan first floated the idea that AOL (NYSE: TWX) should remove its inventory from the company’s Advertising.com and concentrate on selling premium only as a way to reverse its revenue declines. After a meeting with AOL CEO Tim Armstrong earlier today, Khan came away thinking that the company is ready to do just that. As Khan notes, AOL’s display woes didn’t just start last year. It actually began shortly after the creation of now-defunct Platform-A unit over two years ago, when the company tried to integrate the various ad tech acquisitions it had made the previous two years. As result, AOL shifted most of its premium ads through Ad.com, the anchor of Platform-A group, which Khan said only reinforced a desire for discounted CPMs among buyers.
While AOL did not return calls seeking comment, the withdrawal of most of the company’s premium inventory follows what Jeff Levick, president of Global Advertising and Strategy, has been saying for months. In an interview with paidContent back in September, he said that there would be a greater emphasis on premium content and premium ad sales. At the time, he referred to a line from Armstrong, which saw AOL as taking the “Goldman Sachs model,” Levick said. “That means being above all of this and trying to see where we can drive the highest value, and not looking to the lowest common denominator.”
If AOL does follow through on his advice, Khan expects wider boost for ad pricing industry-wide. By dint of AOL’s significant market share, holding back on cheaper inventory in favor or premium could create a “tailwind” that would wash over Yahoo (NSDQ: YHOO) as well, making it easier for that company to sell its more expensive inventory.
The loss of AOL’s premium inventory would be at least a symbolic blow against Advertising.com. Last summer, TMZ, which is partly owned by AOL and Time Warner sibling Telepictures, decided to bring its ad sales in house and stop using Ad.com. AOL has long touted Ad.com for its extensive reach. It’ll still have that even if AOL takes all its inventory away. But it could mean a much diminished future for the brand.