Pittman faces hard-sell ad dilemma

The newly appointed AOL CEO desperately needs to shore up the company's flagging ad sales--but that task could be complicated by growing consumer sensitivity to aggressive online marketing tactics, according to some analysts and customers.

"Why should we have to pay for advertisements when we pay monthly through the nose?" asks Carolin Gazarato, an AOL customer who said she fields multiple pop-up ads on the service with every visit.

Falling ad revenue is clearly an issue for the troubled AOL Time Warner unit, but analysts and some members point to a separate and equally pressing advertising problem: the company's incessant marketing come-ons. Now, as the service faces a crossroads, courting customer loyalty is returning as a top priority at the online giant, which has lured some 34 million members through a combination of relentless promotion and promises of ease of use.

Wall Street analysts say the company will have to work hard for advertising deals in the coming year because many of the leftover deals made during the dot-com boom are coming up for renewal. Not counting sales from internal AOL Time Warner advertising, the unit's ad sales in the fourth quarter were down 27 percent to $637 million from the previous year's quarter.

That downward trend will likely continue into the third and maybe fourth quarter of this year, as the company continues to restructure ad and sponsorship deals that come up for renewal, said Youssef Squali, principal at First Albany.

"They've needed to recalibrate how they work with advertisers, and they're still in transition," Squali said. "They will be this whole year."

Part of that transition may affect its Web advertising strategies.

Pittman, co-COO of AOL Time Warner, also became chief executive of the Dulles, Va.-based AOL last week, replacing former CEO Barry Schuler, who ran the unit for 15 months. Time magazine reported last week that Pittman told colleagues that he considers pop-up ads on the site out of control and will move quickly to fix the problem.

AOL spokesman Nicholas Graham declined to comment on the statement, saying he would not elaborate on any public statements made by Pittman or on plans to cut back on pop-up advertising.

Industry executives say that it would not come as a surprise if more mainstream Web publishers such as AOL become more sensitive to overkill and pull back from imposing advertising that may alienate visitors.

Pop-ups and pop-unders are advertisements spontaneously launched as new browser windows, often cued when a visitor opens or closes a requested Web page. Since the dot-com implosion, Web publishers have cozied up to the ads as a means to improve response for advertisers and keep them coming back for more. But in some cases, the ads can be too imposing. They can also sap surfing speeds for dial-up users, which account for about 77 percent of AOL's audience, according to Nielsen/NetRatings.

Jakob Nielsen, a Web design and usability guru, said that he believes that there will be pop-up backlash and mainstream sites will start to scale back the number of pitches to avoid losing consumers.

"A few pop-ups were annoying, but users are now being barraged to the extent that they exhibit active hostility toward those sites that pollute their screens with too many pop-ups," said Nielsen, president of the Nielsen Norman Group and author of "Homepage Usability: 50 Websites Deconstructed."

"After awhile, these hostile feelings will be strong enough to make the smarter sites wise up and reduce the number of pop-ups," Nielsen said.

Adam Gerber, media director for the DigitalEdge, said the ads can be misused but they've become so popular because they get results. His agency typically sees consumers respond to pop-ups or pop-unders five times more often than to traditional banner ads.

Still, cutting back on pop-ups could make sense for AOL in its ongoing battle to keep its customers happy, win new subscribers and stave off the competition. Since its merger with Time Warner in January 2001, the company has faced increasingly fierce competition in the Net access market, as well as mounting pressure from Wall Street.

AOL commonly serves pop-up ads as subscribers log on to the service, including pitches for the latest version of the service or magazine promotions of Time Warner publications. Some consumers say that they see many more pop-up ads coming from other second-tier Web sites.

Compared with other major portals such as Yahoo, AOL is pretty low on the totem pole for intrusive advertising, said Denise Garcia, research director for Gartner. But she said that AOL must be careful not to alienate its high percentage of visitors connecting via dial-up to the Web with pop-ups, which can hog bandwidth and impede Web surfing.

The company has had to work on its relations with marketers too, she said. The company's ad sales team has long had a reputation for being inflexible and haughty when it comes to deal making. Garcia said the company has yet to develop a rate card, or standard fees for common ads on its site.

"They say they work with clients to create customized advertising," Garcia said. "That's great, but it also begs the question: Is it fair?"