Bronte Media

AOL’s growth in advertising revenue was widely applauded when Time Warner announced its third quarter earnings yesterday. Except most of the gains didn’t come from AOL.com but rather from the astoundingly successful ad.com acquisition.

Let’s take a look at the numbers:

So around half of the gains came from Ad.com (~$60m), a quarter from search (~$30m) and a quarter from traditional display (~$30m).

Of more interest was: “Of the increase in Advertising.com revenues for the three months ended September 30, 2006, approximately $46 million resulted from an expanded relationship with a major customer in the second quarter of 2006.”

So basically Ad.com’s relationship with, I am assuming, the University of Phoenix was more important financially than everything AOL has done to fix the display side of it’s business.

I think the most troubling thing with the coverage is that they arethe collective media coverage is making the trends personal: Yahoo versus Google. Ask and AOL make Yahoo look bad. I don’t think that at all. Rather I think that Search is making Display advertising look bad. And that people should take a step back and have a longer think about the dynamics of the display advertising market.

It has been showing signs of weakness all throughout last year. MSN has been doing terribly and in 2005 AOL only grew their display advertising revenue by only 9%.

Yahoo is of course more skewed toward the display ad dynamics.

Ad.com is clearly doing exceptionally and a huge part of their business is display. But it is for large direct marketers who mathematically eke out efficiencies and buy huge amount of inventory for cents or low dollar CPMs.

That is clearly a healthy segment of the market. But I think that people are just assuming because direct marketers have fallen in love with online advertising so too will the big brand marketers like the automotive manufacturers and CPG companies. I think that is where the biggest disappointment will come. They simply aren’t showing up to the party.

Time Warner 10Q for Q306 [PDF] if you want to check the math