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AOL's Falco: Consumers Are in Control

AOL's Falco: Consumers Are in Control Brad Berens

As Chairman and Chief Executive Officer of AOL LLC, Randy Falco is responsible for setting strategy and overseeing the businesses and operations of this global web services company. Falco joined AOL in November 2006 from the NBC Universal Television Group where he was President and Chief Operating Officer.

Editor's note: Don't miss our one-on-one interview with Randy Falco.

Newly minted AOL Chair and CEO Randy Falco opened this week's iMedia Brand Summit in Coconut Point, Florida to a packed room. The title of his talk -- what Falco described as his inaugural speech in his new role -- "Media 2.0: Where Consumers Are Going, and How to Connect with Them." 

"I noticed watching the opening video that it says, 'AOL delivers.' That's true, but today I'd like to expand on that a little and talk about how the internet can deliver."

When he made the decision to leave the world of television after 31 years at NBC, many of his friends and colleagues wanted to know why. "My friends in traditional media are trying hard to understand the digital media landscape. They are experimenting with new forms of distribution, from video streams to iPod sales. At the same time, they are struggling with declining audiences and sluggish ad revenue growth, and trying to figure out how to adapt their business models to this emerging new interactive reality," Falco said.

What portals like AOL, Google and Yahoo! bring to advertisers, Falco said, is scale, scale that the websites created by the big TV networks can never hope to equal. "Since I've always been used to having scale when talking to marketers, I thought, 'isn't it better to be standing where the ball is thrown rather than scrambling to catch up to it?" Hence his move to AOL.

"Since we're all in this together," Falco told the audience, "I need all your talent and creativity to truly innovate in this space." He laid out three particular marketing challenges:

  • The internet should find its own version of the 30-second spot

  • Marketers should work with AOL to find new and more effective online campaigns

  • Everybody should work to make online display ads more dynamic and engaging.

Weaving into these three challenges, Falco articulated the four facets of online that have most struck him since his arrival at AOL two months ago: the unprecedented pace of change; "the importance of the consumer, who grows increasingly in control of everything online;" the explosion of online video, and the growth in the importance of networks.

Pace of change
"It took 26 years for television to reach one quarter of the population, and it took radio a similar amount of time, 22 years," Falco said. "But guess how many years it took for broadband to reach into a quarter of U.S. homes: just eight."

"Terms like Web 2.0, the long tail, podcasts, feeds, mashups, didn't even exist in any practical sense just a year or so ago," Falco continued, asserting that today such technologies are transforming both traditional and interactive media, with examples that include:

  • 70 million iPods sold in about five years

  • 2 Billion songs sold by Apple

  • 12 million DVRs in just over six years

  • 2 Billion cell phones worldwide

"Each of these technologies is putting more control in the hands of consumers," Falco said. "Letting consumers decide when, how, where, they get their information." All of these things point to an insatiable consumer desire, "to share information and entertainment, and to be heard!"

Consumers in control
At NBC, Falco said, he had thought the network to be "unrelenting" in its focus on the audience, what worked, what failed, and what it wanted. However, that focus pales, "in comparison to what's happening online: we're not only watching consumers, but consumers are watching us."

Moreover, Falco said, the consumers are "increasingly involved in generating their own content… in essence, your friends are the network." As proof, Falco cited the phenomenal growth of YouTube, MySpace, Digg and Craig's List, all of which grew entirely by word of mouth, with 63 million people maintaining blogs, as well as interacting with photo-sharing sites, podcasts and more.

Next: An Explosion of Online Video

To Falco, the most interesting and late-breaking development in online video is that it is coming full circle and "moving back into the living room…. That's where the real transformation of entertainment will begin." In January, at CES, Falco saw the face of this transformation in the new Sony Bravia flatscreen television.

But the abundance of video content poses another challenge that much resembles the early days of the internet: "How do you find all this stuff? And how do you monetize it?" Describing existing video search as unhelpful, Falco alluded to AOL's acquisition of video-search company Truveo and how the company has started to license Truveo's video search tool as well as open the API to those who'd like to mash it up.

Scale matters: the growing importance of networks
Acknowledging that in an era of user-generated media it might seem counter-intuitive to stress the value of online content networks like AOL, Falco nonetheless argued that the value of networks is only increasing, as is each network's share of marketing dollars.

"Today, Google, Yahoo, AOL and MSN have a combined market share of 58 percent. That's up from 48 percent just two years ago. What's more, there's a big fall-off from these big four to the next tier of companies. While these four all have a billion dollars plus in annual ad revenues, the number five company, CNET, has less than four hundred million dollars," Falco said. What the networks bring to the table is a combo-platter of scale, innovative solutions, research data and targeting expertise. All of which, Falco predicts, will lead to increased network growth in the future.

Moving brand dollars online
But what is the nature of this growth? Falco showed a slide comparing the top 10 overall advertisers in terms of spend with the top 10 interactive advertisers. While Procter & Gamble, General Motors and Time Warner topped the traditional chart, the top three interactive advertisers were Vonage, AT&T and Dell.

"Many big brand marketers are still under-investing in the online media," Falco said. "The top 100 advertisers account for more than half of television advertising, but just 32 percent of online ad spending" (according to eMarketer data). However, Falco predicts that, "if I were to show this chart again in a few years, the top 10 overall advertisers would be the same as the top 10 online advertisers."

Falco's rules for consumer engagement
Winding up his keynote address, Falco turned to ways to engage -- and how not to engage -- consumers online. "On the internet, you can talk to your consumers, but more importantly, you can listen to them," Falco said, going on to offer the guidelines he has put together in his short time at AOL:

"First, respect the consumer-- don't interrupt his or her experience," Falco said. "In an on-demand world, ads that are unrelated or interruptive are deadly.

"Second, open a dialogue with your customer. Learn to listen as well as talk," Falco said. "They want to be heard.

"Third, be willing to give up some control. I know this involves some risks, but I believe that consumers will reward those brands that come across as genuinely more open and willing to listen.

"And finally, it is important to know what your brand stands for and who you are trying to reach," Falco said, going on to describe Dove's success with its Real Beauty campaign.

"The highest and best use of the internet for marketers is to understand that it provides a two-way dialogue with consumers. It provides us with unprecedented access to their wants and needs, and even their hopes and dreams. Each of us has the chance to seize this opportunity," Falco concluded. "Open that conversation, and succeed in ways that are hard to imagine today."

Editor's note: Don't miss our one-on-one interview with Randy Falco.

Brad Berens is the editor in chief and chief content officer for iMedia Communications. Read full bio.

A trusted advisor to companies of all sizes and a respected voice within the interactive media industry, Dr. Brad Berens has enjoyed a wide-ranging career that features storytelling as an organizing theme. These days, he divides his time among...

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