A year ago, AOL announced its boldest attempt yet to shed its reputation as an internet has-been and instead become one of a handful of big online operators including Yahoo and Google (NASDAQ: GOOG - News) that are capturing a slice of booming internet advertising.

E-mail accounts would be free, AOL would stop marketing its declining dial-up internet connections, saving tens of millions of dollars in costs, and instead of losing market share in the online advertising market, it would gain share.

Just over two months ago, Jeff Bewkes, president and chief operating officer at AOL's parent, Time Warner (NYSE: TWX - News) , reminded a packed room of investors of this aspiration, following a couple of quarters during which AOL's advertising revenues grew by an eye-catching 40 per cent.

"We believe, and our plans are, that we're going to grow ad sales faster than the industry." he said on May 31.

On August 1, the plans changed. Earnings for the second quarter were less than expected for AOL – with advertising growth up 16 per cent. The guidance for the year was also lower: "We're stepping back from our expectation that AOL will grow its advertising at or above the domestic industry growth rate this year," Dick Parsons, chairman and chief executive of Time Warner, said.

The unexpected dip led to a fall in Time Warner's share price – it closed at $18.29 on Friday, down 5 per cent, back where it was before the most recent results and 17 per cent down on the year. Poorer-than-expected results from the group's cable division have also contributed to the share declines.

But the reduced guidance has soured some investors' view of AOL and its prospects, with analysts such as Michael Nathanson at Sanford Bernstein cutting their price targets for Time Warner. The lack of notice on the poor results has also led to complaints.

"They had good momentum with the investment community [for AOL]," Mr Nathanson said. "Given that the results were a very large surprise, the market will now be a bit more sceptical about AOL."

There is a lot riding on AOL's performance, both for Mr Bewkes and for Time Warner, the world's biggest media company which also owns Warner Brothers studios and Time Inc magazines business. AOL is one of the world's biggest internet brands, and in terms of unique users its various sites remain some of the world's biggest.

The second-in-command at Time Warner, and regarded as the likely successor to Mr Parsons, Mr Bewkes put his name to a new strategy at AOL.

Eight months ago, he put in place new senior management, including television veteran Randy Falco from NBC Universal.

Meanwhile, AOL is having to transform itself from within and deal with one of the fastest-changing external environments ever seen.

There are also new threats to AOL's third-party advertising platform. Microsoft acquired Aquantive for $6bn, and Google, as well as media buying agencies such as WPP, is moving into the booming business of automatically placing ads on the web.

"The online advertising market is really evolving, and advertisers are shifting to buying a target type of audience and not a specific website," said Ben Schachter, analyst at UBS. "It is an understatement to say AOL and others are under a lot of pressure."

AOL is expected to continue to make acquisitions and recent deals have won praise. However, the broader strategic direction of the group remains unclear: whether it will be spun off, or whether it will combine in some way with rivals such as Yahoo or Microsoft. Mr Parsons has said he will decide by the end of the year if the new strategy is working.

Time Warner's board is due to meet again in October, and if the current slump continues, there will be pressure on them to push for changes.

"How long can the Time Warner board give current management to endlessly "reposition" the asset portfolio for growth?" asks Richard Greenfield, analyst at Pali Capital.