May 24, 2006 12:25 PM PDT

AOL eyes broadband and advertising

AOL will launch a new search function this summer aimed at broadband users, as the company seeks to make more money off advertising amid slipping revenue from subscriber losses, the chief executive said Wednesday.

"When we launched AOL.com seven to eight months ago, we designed it to be a broadband portal," Jonathan Miller, CEO and chairman of AOL, said at the Goldman Sachs Internet Conference in Las Vegas. "We're taking the same mentality to search."

Miller did not provide details beyond saying that the new search function would involve multiple sources and load quickly.

Time Warner's AOL Internet unit wants to "evolve the entire experience (and) start from ground zero with what would be a good broadband experience that takes Google (technology) and adds on top of that," he said. "In search, I do think there will be turns of the wheel."

Last summer, AOL relaunched its AOL.com site to open up to Web users for free content previously available only to paying subscribers. It has lost nearly 30 percent of its subscribers since September 2002 and watched as Google's revenues have skyrocketed from search-related advertising. AOL's first-quarter 2006 revenue fell 7 percent from a year earlier on a 13 percent drop in U.S. revenue subscriptions, which still represent most of its business. Advertising revenues, meanwhile, rose 26 percent year over year.

On a year-over-year basis, AOL's page views declined about 15 percent but were flat sequentially since the relaunch of AOL.com last year, Miller said. "We've caught up with the market and we think we have more headroom because we think we know exactly where we can be better," he said. "It's about the optimization" and improving the monetization of AOL's broad user base of 240 million worldwide, he added.

Google powers AOL's search, and the companies late last year renewed and expanded the partnership, with Google investing $1 billion for a 5 percent stake in AOL and the two agreeing to collaborate on advertising, instant messaging and video.

AOL sees broadband advertising as its ticket to future growth. Last week, the company said it had purchased Lightningcast, an online-advertising company that specializes in the placement of streaming video and audio content. In January, AOL purchased video search engine Truveo. In 2004, AOL acquired Advertising.com.

AOL's challenge is to manage its internal conflicting business models--the free Web business and its subscription-based Internet service provider business, Miller said. "That is something our competitors do not have to do."

As far as regrets, Miller said AOL made a mistake when it chose to charge for AOL e-mail instead of offering it for free. "In my view, that's why you have a company called Yahoo," he said.

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