Business: Is AOL's Restructuring Too Little Too Late?

AOL announced this week that it will be trading its Main Street digs for Broadway. The company, headquartered in a sprawling office park in Dulles, Va., is moving to New York City next spring as it again attempts to transform itself from a technology into an advertising supported, info-tainment portal that can compete with Google, Yahoo and Microsoft.

"This realignment is the final stage of moving from an access business to a global ad-supported company," says AOL spokeswoman Anne Bentley, who would not say whether the new focus will result in layoffs at the company. AOL has spent the last year buying advertising businesses—Tacoda, Third Screen Media, Adtech, Lightningcast—and will combine them with its property in a new network they're calling Platform A. The new group will allow companies to advertise in a variety of spaces beyond AOL's portal site. "It makes sense," says David Hallerman, an analyst at "The portal market alone is still important but it's evolving."

Once a high-flying player in the technology sector (remember when it was called America Online and it used its supercharged stock to take over the old-media behemoth Time Warner in 2001?), the company was forced to pay $300 million as part of a settlement with the government in an accounting scandal. The media conglomerate eventually dropped AOL from its corporate name, demoting the company to subsidiary status. In the meantime, Google rose to prominence as the top contender in the online sphere, sewing up 25 percent of the ad market, which Hallerman estimates will reach $20 billion this year. Yahoo has 18 percent of that nailed down; AOL just 8 percent.

So does that mean it's too late for AOL to reinvent itself from its dial-up days? "It's a long overdue aggressive move but, gosh, at least they finally decided they were serious about this business," says Forrester Research analyst Shar VanBoskirk. "Everybody is trying to make inroads against Google. In the case of AOL, they had their chance to be Google and they blew it."

Indeed, they're off to a slow start. In August, AOL reported that advertising growth from April through June was 16 percent, compared with 40 percent in the first three months of the year. Still, in the second quarter of this year, 55 percent of its worldwide share of revenue came from subscriptions; 42 percent came from advertising. At the same time last year, before the company stopped charging customers for e-mail access as part of its restructuring, 76 percent came from subscription and 22 percent from advertising.

Some analysts think the move to New York will only help. "One reason that Silicon Valley is still the center for technology is that proximity and face-to-face meetings still matter," says eMarketer's Hallerman. "When it comes to making deals, people need to meet with people; this hasn't gone away. Similarly, in terms of media and advertising, New York is the center. There's more and more money going to the Internet. Just because they don't get the most doesn't mean they're not doing well." Forrester's VanBoskirk is also cautiously optimistic: "Fourth place in the online ad space is not a bad place to be."