AOL's Jonathan Miller

Jonathan Miller has the toughest job in the Internet space -- running AOL.

When Miller was named AOL's chairman and chief executive officer in 2002, Time Warner chairman Richard Parsons gave him a simple mandate: Turn the world's largest Internet services provider around.

Unless you've been in hiding, you know that founder Steve Case's dream hitched its wagon to dial-up, became a behemoth, went through some turbulent deal-making years that left a bad taste in the mouths of brands, agencies and the Feds, and waded through the stormiest acquisition in the history of modern business.

Today, Case is gone, the AOL name is off the Time Warner headquarters on Columbus Circle in Manhattan and the stock ticker -- largely at Miller's request -- and AOL is quietly regaining its luster. Miller is the diamond cutter reshaping this jewel.

He came into the job fully armed from his gig as president and chief executive officer of USA Information and Services (USAIS). Prior to that, Miller served as president and chief executive officer of USA Electronic Commerce Solutions, was president and chief executive officer of USA Broadcasting, and worked for Nickelodeon in the mid-1990s, joining as chief executive officer/managing director of Nick UK in 1993 and rising to managing director of Nickelodeon International. Before that, Miller was chief executive of Paramount's first branded international channel, launching the Paramount Comedy Channel in London, and was vice president of programming and NBA entertainment at the National Basketball Association in New York.

Miller will be the opening keynoter at the iMedia Brand Summit in September. I spoke with him by phone about the state of the industry, today's AOL and what's next.

Watters: What surprised you most in the interactive world this past year?

Miller: I've had a few surprises. I guess the thing that did surprise me most, probably, is how solid the advertising business is across the Net. Not that I didn't think that would happen, because I thought it would happen for a long time, it just seems now that it's really becoming a true normalized business -- and that's happened very quickly.

Watters: There were some issues with marketplace and advertiser perception at the end of the [Bob] Pittman era. How are you feeling about where AOL is now, compared to where it was when you started? And tell us about your "Superstore on the Web" strategy.

Miller: Two different things. One is about our position on advertising; the other is the subscription business. So I guess the preface would be to say that I like the idea of two revenue streams -- subscription and advertising -- because that, to me, is healthy and a good thing. And that's not surprising, having spent some time in the cable and broadcast industries, where cable networks with two revenue streams do very well, thank you. So I would have a bias in that direction for the two revenue streams. I think a strength of AOL that we need to work to continue to maintain is the strength that is the dual revenue stream nature.

In the advertising industry, we were really not -- if I can use the word "normalized" -- we were not normalized until really recently. We had a different way of serving ads, we had a different selling structure, pricing structure, and as the Web world was getting into a regular rhythm, we were not fully a participant in it. I think we've become much more so, and we're starting to really see that. I think now we're on that right course.

So for example, we've made our way of serving ads standard almost across the system, and it will be pretty much done by the end of the year, which is just a major infrastructure change and I think clearly the right thing to do. We've revamped our sales force, our management, and we now manage our inventory centrally across all of our properties -- all these kinds of things that have been done organizationally and technically just to put us really in the game, which, I believe, will start to get us our fair share, meaning our audience delivery will translate, hopefully, directly to the dollars, for lack of a better term.

That's a great step, to get our fair share. Obviously, we want to do much better than get our fair share. So I think the next period is about getting our fair share, and the period after that is we want to compete and take share.

The good news in the advertising business is the online advertising marketplace is beginning to take share, and we're beginning to see a share shift from other media to online, but we can come back to that if you like.

Watters: That was my next question.

Miller: The thing that's surprised me this year, to go back to that, was that I think this is the year that we'll see those numbers come out more and more -- that the online industry as a whole is beginning to see real share shift of dollars. And as you may know, depending on what stats you look at, people spend about 12 percent of their media time in the online realm, but it's only about 4 percent of the dollars.

Now, that's not going to necessarily get to a 1 to 1 ratio anytime soon, but the fact is it's going to trend towards that, and every kind of quantum of trending really brings a lot of new dollars into the marketplace. And that will continue for a while. So I'm bullish on online advertising because of share shifting for quite some time, and that's reason one.

Reason two is broadband, which makes the medium richer and the ad serving, frankly -- the ad experience -- better. So both of those things translate to more dollars.

Read part two.