America Online Inc. on Thursday announced an improved Internet search engine designed to help it attract nonsubscribers and tap into the roaring online advertising market.
The nation's biggest Internet service provider, which has seen its membership numbers dwindle, is gradually giving the general public access to content and services it once reserved for paying AOL members.
The search engine's new features, due to appear on AOL.com early next week, will be the cornerstone of efforts to attract more Web surfers and the advertising dollars that follow.
"Search is absolutely at the core of user behavior online today," said Jim Riesenbach, an AOL senior vice president.
Advertisers flocked to the Internet in 2004, spending $8.4 billion, or 27% more than in 2003, according to JupiterResearch. About one-third of that money came from ads delivered along with search-engine results; search engines are paid when users click on the ads.
For The Record
Los Angeles Times Saturday January 22, 2005 Home Edition Main News Part A Page 2 National Desk 1 inches; 56 words Type of Material: Correction
America Online -- An article in Friday's Business section about America Online's improved Internet search engine said the company reported $219 million in online advertising revenue through the first nine months of 2004. That figure represents revenue only from ads delivered with its search engine results. Total online advertising revenue for the period was $692 million.
Web giants Yahoo Inc. and Google Inc. were the big beneficiaries.
But AOL, a unit of Time Warner Inc., has lagged. Subscriptions -- AOL's core business -- have fallen by 4 million since a peak of 26.7 million in September 2002.
As a result, AOL's share of Internet searches is dropping -- from nearly 13% in May to about 9% in November, according to the research company ComScore Networks.
In turn, the company collected a relatively paltry $219 million in ad revenue through the first nine months of the year.
In all, ads related to Internet searches accounted for about a third of AOL's online advertising revenue. The rest came from so-called banner ads -- the display ads shown on Web pages.
"Internet advertising is just red hot, and they're not as big a player as they think they should be," said Rob Sanderson, an analyst with American Technology Research.
Cost cutting has helped AOL turn a profit even with fewer customers, quieting much speculation about whether Time Warner would sell or spin off the once-ailing unit. Now it's opening more services to the masses to compete for advertising dollars with Yahoo, Microsoft Corp. and others.
"They'll continue to open up more as that subscriber base dwindles further," said Niki Scevak, a JupiterResearch analyst.
Time Warner Chief Executive Richard Parsons recently said he expected AOL's online advertising revenue growth to match or outpace the rest of the industry this year.
To help it reach a broader audience, AOL -- which uses Google to power its basic Web-search tool -- is introducing extra features intended to help it compete with other search engines.
One, developed in a partnership with Norway-based Fast Search & Transfer, will deliver search results tailored to the searcher's location.