AOL chairman Miller talks about opening the "walled garden," getting back search dollars, and more (second of three parts).

Read Part One

When Jonathan Miller joined AOL in 2003, Time Warner boss Richard Parsons gave him a simple mandate: turn the world's biggest ISP around. Miller has done just that. In a conversation with marketing consultant Neil Perry at the iMedia Brand Summit, Miller talked about the "new" AOL, Advertising.com and how the company will grow market share. Here's their conversation.

Perry: On the subject of content, we've heard an awful lot about AOL.com being reconfigured and relaunched on the Web with additional AOL content. Is this our first step in getting behind the" walled garden?"

Miller: Well, that's not what it really is, but first off, because AOL.com has been a place that, if you went to, you had a reason to go there. You're on the road, and you need to pick up your email, you're an AOL subscriber, you want to pick up your email or something like that - - because otherwise, I can't imagine why you would go on there. It is really not a great site.

So the first thing is, how do you become a great site and what do you do? And we think we're on that path and can reasonably launch a schedule for later this month that's pretty cool. And it would encourage people now, just to maybe go into the office. I think a lot of people who are AOL subscribers will now start using AOL over high speed with additional broadband users in the office.

And now, it is interesting that we tended to classify people as narrowband or broadband, but in fact a lot of people are narrowband at home, go into the office and are broadband users. And then you have wireless devices. So in fact it's all multi-net -- it's much more full.

So the first thing is to get that really going. But, you know, you put two and two together and you say, "well, when we program to an audience that's at-work… who use it not just to get emails, but because it's a great destination to go to." Then you start thinking, well, you know, what are the walls for anyway?

Perry: How far are you going to go with going behind the walled garden, and how far can you go without hurting your subscription base?

Miller: I think we go as far as we can. I don't believe we really hurt the subscription business. I don't believe people are paying subscription fees for content today. I do think in the future, particularly as broadband richens, that that may become the case. The big thing that's emerging is the safety and security online, and I'm sure we all [feel worried] about viruses, spy ware and all the other stuff. It's real and it's getting worse. So I think that's something you pay for, that kind of protection, and communication.

Perry: Where are you in transitioning out of [AOL's proprietary publishing system] Rainman, into a new environment?

Miller: I think we're down to the final strokes, I don't know if that's the right word. I think Rainman in it's time, it made a richer environment, but its time passed. And so it will become better.

Perry: Did your My Music channel venture with Time Warner Cable further establish your going again beyond this walled garden environment and will you be working with them?

Miller: Yes and yes. What we did on that one is we took Sessions on AOL, for example, we released them on [a] channel on Time-Warner cable in a couple of test markets. They did very well. So we think this is a great use of the content -- that's cross promotion to AOL, if you will, and it's an AOL sampling opportunity as well as a valid channel on top of cable.

Perry: AOL wants to make its product available over a wide range of devices. What are the opportunities that you see?

Miller: There are two real stories to me going on here, in the industry. One is that the Internet is going to be always hot, right? [With broadband], I think what's more important than speed is the fact that it's always on. The second is it's always with you. You're going to carry it with you in your Blackberry, your PDA and many, many other devices, so… that would change not only the usage but tremendously change advertising matters as well. Different screen size, different ways of accessing. The big growth of connection here in broadband is just the tipping point in terms of penetration in the United States. The next thing that's going is connective devices, even more far-reaching than we realize.

Perry: What do you think the critical nudge will be for those choices?

Miller: I think they're going to skyrocket. If you look at studies of [young adults], they graduate from college, they go get a room, they don't get a landline, they [use] their cell phones. Cell phones, you know, it's your private line. There's wireless, there's laptop, there's TV. You know conversion isn't a device; conversion is those people -- that's what they do. They create, converge and live with their cell phone. And so, if you're talking about integrated marketing, that part doesn't need integrated marketing because that's what people are doing now. They are looking at all those screens simultaneously.

Perry: On the subject of Time Warner does it illustrate that AOL should remain a part of the company?

Miller: I think certainly there's more growing this year to do with the planned board review, and you know, and at the time the press forgot the act was planned. I think that they certainly tested the market and found it was better in the fold for a lot of different reasons -- financial, as well as the way it's operated. So I think as long as the company is growing and growing strong -- we're up 15 percent this year -- which ain't bad by most any standard.

The New York Times last year said in the headline, "AOL Plans to Make Money in 04." Yeah, we made a $1.5 billion last June. We'd like to make money again this June. So we're actually up first half of the year and we'll expand on that, so it's good growth rates… I think that's happening as a company, and so it's really about our belief in saying that. It's that plain and simple. If we can show that we can sustain growth rate, the rest is going to follow.

Perry: You knew we were going to get back to search. I want to talk a little bit about the Google deal and does the fact that you pursued the placement deal make you a non-player now, in search -- other than that big IPO windfall business.

Miller: Lovely thorn in the side. Let me say where we were. Where we were in search about 18 months ago was over two-thirds of the searches that were done by AOL subscribers were not done through AOL, meaning they were AOL subscribers but they'd direct to Google or Yahoo, or whatever they would choose. Obviously we had nothing for them. So two-thirds of searches that took place on AOL we had nothing for -- and as we sit here today, that equation is a bit more than two-thirds are now done through AOL which we do get paid for. And we think significantly that had to do with leveraging Google and more, what we pay is Google and a whole lot more. I think we've established a place in the search world, because we have Google and it's been a terrific relationship, and on top of that we have multi-media searches, we have locals.

And we have a layer on top of the Google result that we call Starship that we put in our stuff, so to speak. We are getting up to about 30 percent from that layer alone. So in fact, one deal in the marketplace is that search is becoming a marketplace. You have Google, you have Microsoft making clear they intend to enter. And we're concentrating on kind of the direct customer layer above that, which is where I would feature the additional feature on top of that, and so far that's working great.

Where do we lose out? Where we lose out is we get money from our people, so to speak, people who use AOL. We don't participate in the in the market of search on the Web generally. We don't get the benefit of that line across the board. One of the reasons we like Advertising.com is they play across the board, not just to our base, so to speak. So we were doing terrifically well from our base with great economic and great story --where we miss out specifically is the rise of search across the net.

Perry: You know the theme of our conference is the Rise of Integration, and the Millward Brown study clearly told us that marketers are struggling with making this happen. It's really difficult for them to pull it off. I'm guessing you may have some suggestions on how to get into integrated marketing and into making it easier.

Miller: Well first, long history, Viacom kind of added Paramount, Blockbuster and all those things, and outdoor was, you know, all going to be about integrated selling. And what you just saw is internally that became a buzzword for "who gets discount," right? So, outdoor gets discounted, so on the sell-side you had a lot of trouble figuring that out and on the buy-side you had a lot of trouble figuring out how to [buy] in terms of their different hidden agendas and different manageability, and so that's why I think these things have been hard to hold off at the same field. There's no kind of standardized marketplace to it all.

And I think the biggest thing you're going to have to do is take the breakthrough, and I believe it's around new product launches, and really about how you put real weight behind new product launches when they're breaking through. That's where these things are going to matter most. Assumptions, as I was saying, they are changing rapidly, so it's not going to be an elective any more. We're going to be asked to do it.

Perry: What about the other AOL brands? We've talked about them earlier but how are they going to be serviced, how are you going to sell them moving forward, how are they going to be marketed, are they getting the same amount of your attention and tender loving care as AOL is?

Miller: We called it AOL Media Network. That's the vision that Mike Kelly has. Which is, we really believe the following: that our strength in the marketplace will not be a one brand, or a one-site strength. It will derive from being able to integrate across a series of network types, creating network and destinations. So we believe in that quest, we believe in that base, we believe in AOL, Netscape and a lot of Time, Inc. brands and other brands across the country. We want to build that kind of network. We really believe in the idea of building a cross-brand network to amalgamate scale -- make it easier for the customer to come to one place and get a large number of opportunities that they can target very well in a very brand-rich environment.

I believe brands matter, too. And so brand-rich, programming-rich environments are good and are good for marketers, and I believe that they're good for us as marketers. But we want to create that as an overall kind of marketplace that we exist within, not just slapping our name on everything. You know, Netscape will have its own identity. The Time, Inc. properties have their own identity. That's good for us, and it's good for the user, and I think it's good for the marketers.

Tomorrow: IM, Internet services, AOL's polling prowess, and what keeps Miller up at night.