Time was that all America Online advertising salespeople had to do was hold out their hands and catch the money. But now they've got to work a little harder than that.
In the latest sign that the balance of power in the online ad business has swung firmly in favor of buyers,
disclosed Friday that it had renegotiated its interactive marketing agreement with AOL in a way that puts a greater burden on AOL to meet certain performance-based criteria.
The disclosure suggests that for all of AOL's dominance of the online advertising business, it no longer has the market power or inclination to do what it was able to do in the frenetic dot-com days at the close of the last century: Make marketers pay up for the privilege of advertising on AOL, and take their lumps if the results of their online ad campaign didn't match their expectations. Some investors took the disclosure as bad news for eBay, too, reasoning that the company's efforts to cut costs on advertising might reflect weaker-than-expected sales.
Details of the amended deal corroborated prior indications from AOL parent
AOL Time Warner
that 2002 promises to be a tough year for the online unit. Last month, AOL Time Warner
slashed cash-flow targets for 2002, saying that the online ad business had deteriorated markedly since it made its January forecasts for the year. Also in April, AOL Time Warner co-Chief Operating Officer Bob Pittman was given the additional responsibility of
heading the online service's operations in an effort to improve its fortunes.
A spokeswoman for AOL declined to comment on eBay's announcement, which appeared in a quarterly filing the online auctioneer made with the
Securities and Exchange Commission
. On Friday, AOL's battered shares fell 49 cents to $17.31, while eBay's shares were bid down $2.55 to $51.11.
Previously, according to eBay's filing, the auctioneer was obligated to spend $18.75 million on online advertising at AOL in the years ending March 2003 and March 2004.
The new arrangement, reached in April, eliminates the second-year obligation, replacing it with a provision that gives AOL the option to renew only if it meets certain performance goals. If AOL meets those goals, which aren't specified in the filing, eBay will have to spend only $15 million on advertising in the year ending March 2004. If AOL meets certain targets for that year, it can renew the agreement for yet another year, with eBay paying a maximum of $10 million for ads.
eBay, which has been featured on the AOL service since 1997, announced its first big marketing agreement with AOL in 1998, when it promised to pay a minimum of $12 million to AOL over three years in return for prominent placement on the service.
The two companies also amended a separate agreement under which AOL personnel sell advertising on eBay's behalf. The new agreement adjusts AOL's commission "to reflect changes in the online advertising market," says eBay; it also moves the expiration date of that agreement up from December 2003 to March of that year. Again, AOL will have the right to extend the agreement should it meet certain performance goals not specified in the filing.