AOL Mail Ads May Boost Revenue, Anger Subscribers

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AOL is testing additional ads within AOL Mail, the media company confirmed late last week, a move likely designed to boost advertising revenue amid a continually declining subscriber base.

Though free e-mail services such as Yahoo and MSN Hotmail run ads on their front mail pages, AOL's move is unusual because it is a paid membership service. E-mail subscribers who pay for the service typically expect to see little or no advertising.

The search engine said it has tested banner ads at the bottom of the "Read Mail" screen, which displays when a member opens his or her AOL 9.0 inbox, for the past several weeks.

The ads do not appear within e-mails and are not targeted to appear alongside relevant e-mails, as they do in Google's Gmail. The ads are served from AOL's general ad rotation, an AOL spokesperson said. The spokesperson declined to say how many advertisers are participating in the test.

Though the spokesperson told DM News that the company's research found that members "weren't bothered" by the ads, subscribers posting on an AOL message board said they were upset.

"I have flashing banner ads at the bottom of individual emails now, and they are incredibly annoying! They're like having spam inserted directly into my emails!" wrote one member on the board.

But losing some e-mail subscribers may be a small price for boosting profit.

"AOL has been losing subscribers for years now, and I think AOL is OK with it," said Stephen Webster, president/CEO of retention e-mail marketing firm iPost, Novato, CA. "Paid Internet access is not growing, it is shrinking for them. They want to be ad driven and really compete with Google on that."

"All the major portals and engines are testing that type of concept to see how much they can get advertising revenue out of these types of platforms," said Scott Linzer, director of search for interactive agency iCrossing.

But Mr. Linzer noted that while iCrossing has evaluated the AOL Mail ads, its clients are not using them right now.

"Many times they're doing well on standard pay-per-click programs, so it doesn't make sense to do that," he said.

AOL's subscriber loss this year reflects that more e-mail subscribers are switching to other, free e-mail services. AOL revenue dropped 7 percent to $2 billion in first-quarter 2006 because of a 13 percent drop in revenue from subscriptions. It lost 835,000 U.S. subscribers and 147,000 in Europe from the fourth quarter of 2005 to Q1 2006.

At the same time, advertising revenue climbed 26 percent, or $81 million, in the quarter.

To boost its ad network, AOL has entered marketing and media partnerships this year. In May, AOL partnered with CBS and Mark Burnett on marketing ventures around AOL.com's online reality game Gold Rush. CBS will promote its fall TV shows by integrating ads into the online game.

AOL also recently acquired video ad insertion firm Lightningcast Inc., saying the combination of that firm and AOL's Advertising.com produces a leading video ad network.

Despite the extra revenue that may be generated from banner ads in the inbox, the move may alienate subscribers.

"No one is saying this is great," Mr. Webster said. "People are complaining about the fact that these new ads are taking up space on their screen."

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