AOL Plans New Ad-dition to Chat Rooms
America Online Inc. said Tuesday it planned to place advertising in company-sponsored discussion areas, or chat rooms, as part of the world’s largest online service’s bid to expand its revenue base beyond mainly subscriber fees.
The Dulles, Va.-based company said placing ads in the chat rooms would generate 360 million ad “impressions” every month, a program one analyst estimated could generate $15 million to $25 million in new revenue in 1997. Impressions, or how many times an ad is viewed, are the advertising industry’s standard method of measuring the impact of individual ad promotions.
America Online stock rose $3 to close at $43 on the New York Stock Exchange.
“AOL has the largest online chat community in the universe,” Bob Pittman, the president of America Online Networks, the company’s main operating unit, said in a statement.
“Over 70% of our members chat and we log 1 million hours of chat every day, a figure that has more than doubled over the last six months,” he said.
AOL’s popularity forced the company in January to settle with 37 states and offer refunds to customers to avoid litigation over its unlimited access pricing plan that created a surge in demand and overwhelmed its network. Since then, the company has put in place a series of measures to expand capacity.
Lehman Bros. analyst Brian Oakes estimated that chat rooms account for about 23% of online usage time among America Online subscribers.
Oakes said AOL places ads on less than 4% of the screens its subscribers view, marking it as a significant revenue growth opportunity for the company.
If ads ran on all interactive services on America Online, including chat, electronic mail, special-interest bulletin boards and its “instant messages” subscriber messaging system, America Online could book as much as $500 million in advertising revenue, he said.
America Online’s chat area, known as “People Connection,” creates up to 14,000 virtual chat rooms with up to 23 people in each area.
Advertisements would rotate every 60 seconds, utilizing AOL’s new software ad delivery technology, the company said.
The ads will run in company-sponsored chat rooms on such topics as current events, romance, places, arts and entertainment, sports and finance. Advertising will not be targeted at private chat rooms created by members themselves, the company said.
As an example, Oakes said sponsored chat rooms could include a Michael Jordan chat session with his fans, sponsored by Nike, or a health-care discussion, sponsored by Johnson & Johnson.
Adding advertising to chat rooms represents America Online’s latest bid to boost revenue from sources other than subscriber fees.
Last week, America Online announced a deal with Tel-Save Holdings Inc., a long-distance phone service provider, in which America Online received a $100- million payment from Tel-Save to market its long-distance services to America Online members.
