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Online Video Is Key for AOL

By Daniel Kobialka – Mar 18, 2014 at 5:00PM

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AOL chief executive Tim Armstrong recognizes the importance of online video and its impact on his company's shareholders.

AOL (NYSE: AOL) has taken its fair share of hits over the past few years, but this multi-national mass media corporation is on the upswing, thanks in part to its investments in online video. While many investors have shied away from AOL recently, this company is ready to right the ship in 2014.

The impact of online video
Online video is the wave of the future for marketers, and will play an important role in AOL's long-term success. AOL chief executive Tim Armstrong told The Wall Street Journal that his company is gaining momentum, thanks to its commitment to online video. In fact, comScore ranked AOL third behind Google (GOOGL -1.48%) and Facebook (META -1.16%) in unique video viewers in January. If AOL continues to make investments in online video, the company could watch profits increase, and shareholders could reap the rewards of these investments as well.

Several technology experts have predicted that more people will watch videos on mobile devices instead of desktop and laptop computers soon, as many new smartphones and tablets become available. Armstrong, meanwhile, is ready to provide online videos to mobile device users across the globe, and is also investing in mobile advertising, premium ad formats, and native advertising to help boost the company's earning potential.

"All three of those are areas we are investing in and have seen really good growth in overall," Armstrong told The Wall Street Journal.

How AOL stacks up against the competition
AOL faces an uphill battle against Google and Facebook, its chief rivals. However, online video offers plenty of opportunities for AOL to make headway due to a number of factors.

According to eMarketer, Google's revenue from search ads on desktop computers is expected to decline 7% this year. Google also faces challenges in fine-tuning its search engine to ensure that it works well for smartphone and tablet users, which could create an opportunity for AOL to extend its reach.

In addition, Facebook is rolling out online video ads next month. These ads could help Facebook increase profits, but may be tough for marketers. Ad Age reports that some video ads could cost upward of $1 million per day.

AOL is trying to make it simple for marketers to launch online video ads. This month, AOL's announced that it reached an agreement with Magna Global, a strategic media unit of IPG Mediabrands, to include television ads in its programmatic buying platform. The move enables marketers to launch online video ads that automatically target specific demographics , which could help AOL further boost its profits.

What to expect from AOL
AOL was once an Internet service provider, but now has the potential to become much more. Over the past few years, Armstrong has been a calming presence for AOL and has helped this company remain afloat. Today, with its commitment to online video, AOL is a strong investment that could provide substantial profits to shareholders in the near future.

Daniel Kobialka has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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