AOL's ‘Project Devil' Drives Higher Engagement, Better Ad Performance

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A few months back AOL ( AOL ) launched the 'Project Devil', which was an advertising product to reduce visual clutter on web pages and enhance ad space functionality in order to drive higher user engagements levels (see Success of Project Devil Could Create 13% Upside to AOL Stock ). In the recently announced Q1 2011 earnings, AOL provided some data on Project Devil, which showed higher engagement levels for AOL ads. In spite of all this, AOL's struggles in the online advertising market against competitors Google ( GOOG ), Facebook and Yahoo ( YHOO ), and initiatives like Devil hope to improve this.

We currently maintain $22.23 price estimate for AOL stock , which is about 18% above market price.


Better Performance of Devil Ads

AOL's revenues declined by around 12% in Q1 2011 compared to the same quarter last year. The company mentioned that the Devil ads performance are substantially better than average Internet ads. The click-through rates and the time spent by users on Devil ads are substantially higher than the industry average.

Here is what the management has to comment on Devil ads' performance:

On the engagement side, the engagement rates are basically interactions, roughly at about 6.4 times the industry benchmark. So, we are seeing interaction rates with Devil ads above 10%. The industry benchmark for engagement is about 1.5%, so meaningfully better results. The interaction rate, meaning how often people actually touch the ad itself, or use one of the individual components and click all the way through, is substantially better. It's about 1.9 times the industry rate. And then the thing that is really meaningful is the time that people actually spend with the ad. So roughly people spend about 14 seconds with an ad if they are going to engage in it, on average, on the Internet. They spend about 47 seconds with a Devil ad, so it's 3.4 times the industry average.

Project Devil has been implemented on a very small scale so far. In the above chart, the revenue per page view metric benefits from higher ad click through rates and higher time spent by users. Assuming AOL rolls the Devil ads out on a large scale, we expect this metric could benefit leading to upside to our estimates.

See our complete analysis for AOL



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AOL , GOOG , MSFT , NOK , YHOO

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