How does AOL make money?

AOL, which was just bought by Verizon for $4.4B, makes its money as a video advertising platform

AOL has had a strange life as a company. In the mid-90s, it was THE Internet service provider. Everyone was connecting to the Internet with their service... until they weren't. As high speed Internet became more widely available, suddenly AOL and its dial-up service became antiquated.

That coincided with its purchase of Time Warner in 2000 for $164 billion in order to combine AOL's online services with Time Warner's media and cable assets, and create a media conglomerate. The purchase was a disaster, and AOL became a bit of a joke. 

Since the two companies split in 2009, AOL has been reinventing itself. First as a digital media company, with the purchase of the the Huffington Post in 2011 for $315 million, and then as a programmatic video advertising platform with the purchase of video advertising platform Adap.tv for $405 million in 2013, and the acquisition of video management and exchange platform Vidible at the end of 2014.

Now AOL's turnaround is complete: its success in those areas led to it being purchased by Verizon for $4.4 billion.

It's easy to see why Verizon would pay that much when you break down how AOL makes its money. Of the company's $625.1 million in revenue in the first quarter of 2015, $483.5 of that came from global advertising.

When broken down, AOL makes money from advertising in three ways: display ads, which accounted for $130.5 million; ads on search, which took in $116.4 million; and, most importantly, ad revenue from third party properties, which accounted for the biggest slice by far: $231.6 million.

Third party properties are those sites that AOL helps sell advertising on, as opposed to the display and search ads, which it runs on its own properties. It's telling that the company nearly made more money from the former than from the latter, and it explains why Verizon wants to get its hands on the company's video and advertising services.

It also means that there might not be as much incentive for Verizon to all of rthe content brands that AOL currently owns, including The Huffington Post, TechCrunch and Engadget. There has been speculation that, given Verizon's obvious interest in AOL's advertising and video platforms, it may sell off its other properties.

The other $116.4 million of AOL's revenue came from people paying for subscriptions. It offers three tiers of membership:

It's lowest plan is AOL Support & Security Plus, which costs $6.99 a month and comes with up to 15GB of storage; 50 4x6 prints per year with Photobucket; a password storage service, complimentary preparation and update of wills, living wills, and power of attorney through a network of experienced attorneys; a discounted AARP membership; McAfee security suite; and dialup Internet service.

It also offers AOL Advantage Premium, which costs $14.95 a month, as well as its biggest plan, AOL Total Advantage Plus, which costs $27.99 a month, both of which come with more enhanced security features.

As of the first quarter of 2015, the company still has 2.1 million people paying for its dialup Internet service.

(Image source: time.com)