AOL Sucks, Google Rocks! If Only It Were that Simple

With most of the year-end numbers in for the major online media companies, it's time to take a close look at how all of them are doing in generating money from that shrinking pool called revenue. In general, it's not a great time to be in the online business -- or any business except for being in repo -- but even the worst players are by and large faring better than most of their non-digital counterparts. Still, the numbers are not what they seem, as I'll explain below. First, here's a roundup of revenue performance (I have not cited full-year numbers for Microsoft and MySpace because their fiscal years are not on the calendar year):

AOL: 2008 revenues declined 20 percent to $4.2 billion, from $5.2 billion in 2007; in the fourth quarter, revenues declined 23 percent to $968 million from $1.3 billion in 2007.

Google: 2008 revenues were up 31 percent from $16.6 billion to $21.8 billion; fourth quarter revenue up 18 percent to $5.7 billion from $4.8 billion.

Microsoft (online services business only): $870 million for its fiscal Q2, slightly up from $860 million for its Q2 2008.

MySpace (and some additional properties which fall into the "other" category): Revenue down seven percent for its fiscal Q2 to $743 million.

Yahoo: 2008 revenues up by three percent for the year from $7 billion to $7.2 billion, but declined in the fourth quarter, by one percent from $1.832 billion to $1.806 billion.

The knee-jerk analysis from looking at these figures would be that Google rocks and AOL sucks, while everyone else is simply trudging along through a weak economy. In fact, there's a somewhat different story just beneath the numbers above. For instance, no one would say that AOL is going gangbusters, but it bears noting that a substantial part of its 2008 revenue decline was in subscription revenues, which dropped by 31 percent or $859 million. (AOL is the only one of the major online media properties making the shift from a subscription revenue base to one that is principally made up of advertising.) AOL's advertising dropped six percent or a total of $135 million, which is certainly on the low-end of big portal revenue performance right now, but in line, on a percentage basis, with what MySpace and its sister properties are experiencing. Actually, given that AOL made its email accounts free more than a year ago, it's astounding that subscription fees still account for so much of its revenue.

As for Yahoo, after all the sturm und drang in the news about it in the last year, culminating with the naming of a new CEO, one might think the company's revenue performance would be much worse. Actually, there are many, many companies which would be happy with only a one percent revenue decline in Q4. The worst may not yet be over for Yahoo, but that's not a sorry showing in the current environment. Yahoo has many problems, but its biggest is that the financial world wants it to be Google, or at least be able to perform like it, and that looks unlikely to happen. But looking at it versus most of its competitors demonstrates that, In fact, it's still a bigger, better business than AOL or MySpace or MSN.

And then there's Google. Great performance, right? Compared to its so-called competitors, yes, but compared to itself, no. In 2007, its fourth quarter revenues grew by 51 percent, while year-to-year its revenue climbed 56 percent, ending at almost $16.6 billion. To post revenue increases of "only" 18 percent and 31 percent respectively (off of a bigger base, true), shows how much its growth has slowed since last year.

Hard what to make of MySpace's revenue drop, except to point out that, historically, some advertisers have been afraid of MySpace because so much of the content is user-generated, and, therefore, has the potential to be dicey. In a troubled economy, it's easy to see what money there is flowing to properties that are perceived as safer, like Yahoo or MSN, both of which MySpace considers to be its competition. Also, while MySpace probably makes up the majority of News Corp.'s "other" revenue category, some of the revenue decline probably comes from other operations under that umbrella.

One slight surprise is a seven percent increase in Microsoft's online business services revenue between its fiscal Q1 and Q2, which is something you can dig up by looking at the Powerpoint that accompanied Microsoft's earnings call. The company said its search business was up by double-digits and that its display advertising business was doing well. That's really curious when you consider that the prevailing thinking, and the performance of some big online players, shows that business declining in 2009.

I'll try to do these roundups once a quarter, though, few quarters will be interesting as the first one after the official start of the financial crisis.