AOL Downplaying Instant Messenger Ads

America Online is quietly displaying third-party ad banners for some large clients on its popular AOL Instant Messenger and ICQ messaging clients.

Together, the two platforms boast a user base of 140 million registered users worldwide. That’s potentially a very attractive market for advertisers, and a lucrative new source of revenue for the big online service.

When AOL’s IM service first introduced advertising, the banners were generally house ads for other AOL properties, or to entice AOL IM or ICQ users into subscribing to the full AOL service. But increasingly, AOL has been successful in packaging IM ads in advertising packages for some large clients — including Telefonica, electrified.com, and the Sony Pictures release “Finding Forrester”.

Yet AOL is reportedly downplaying this new move to monetize its instant messaging investments. The Washington Post Tuesday quotes AOL’s Barry Schuler as saying that selling ads on its instant messaging system is an experiment for AOL, and doesn’t contribute much at all to its revenues.

The Post speculates that AOL may be trying to keep a low profile to avoid raising new red flags with regulators who are reviewing its merger with Time Warner.

Some say that instant messaging is on the verge of becoming a “killer application” that displaces the browser and email in importance on the Internet user’s desktop — so being able to buy ad space there will be a top priority for many advertisers.

But David Simons, managing director at Digital Video Investments, an institutional research firm, says the benefits of advertising on interpersonal communications systems of any sort are still unproven. And Simons notes that earlier experiments by AOL to advertise in chat rooms, for example, bombed.

“It’s not clear to me yet that advertisers have come to any realistic conclusions about its value. Certainly the presence on the desktop has some value, but the question is, how much? How much is it worth versus a banner? Because … advertisers don’t have unlimited budgets. They can’t go throwing money at every new thing that comes along. They have to make choices.”

Some fear that AOL’s dominance in the instant messaging market could give it an unfair advantage in selling ad space there. But there’s pressure on AOL to move toward interoperability in instant messaging. And once the playing field is leveled by an industry standard, Simons believes that consumers and corporations will gravitate toward IM systems that are uncluttered with ads.

“Once it’s standardized … you’ll have all kinds of free messaging clients, particularly in the corporate environment. … Microsoft included; Microsoft doesn’t really care about advertising on instant messaging. They’ll all have instant messaging, vanilla instant messaging. … I think, eventually, this becomes a dead-end for advertising.”

Brian McWilliams is host of internet.com’s Internet News Radio.

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