NYT has a feature on the new AOL CEO Tim Armstrong’s efforts to remake AOL.
Tim Armstrong became chief executive of AOL in March after serving as president of advertising sales for Google.
Shortly after Tim Armstrong took over as chief executive of AOL, he asked to see the list of business deals that were being negotiated. He saw 900 of them.
It was too many by far. “If you looked through the deal sheet, would you have been able to see the strategy of the company?” he asked. “I had a hard time.”
The deals were small and incremental. At best, he said, “you would have thought it was a small- to medium-size Internet company.”
Mr. Armstrong wants AOL to think big again. Three months after leaving a senior job as Google’s president of advertising sales, he is formulating his ambitious recovery plan for AOL. He wants to make AOL the biggest creator of premium content on the Web and the largest seller of online display advertising.
Mr. Armstrong plans to outline his five-point strategy on Friday for the company at an all-hands meeting under a large tent on its half-empty campus near Dulles International Airport outside Washington. Beyond talking about business lines, however, Mr. Armstrong’s primary challenge is to address what he calls AOL’s “crisis of confidence.” He wants the weary and beaten-down company to grow again.
“AOL has a choice to make,” he said. “We either lose slowly or win quickly. We are choosing to win quickly.”
Nine and a half years after Steve Case combined the company with Time Warner, AOL suffers from myriad problems. It has long since lost the mantle of king of the Internet to Mr. Armstrong’s former employer, Google. It has suffered through wrenching waves of mass layoffs, management turmoil and constant bickering with its corporate parent. Time Warner plans to shed the unit by year end. Meanwhile, AOL struggles with the prospect of fading into irreversible irrelevance, a collection of tired brands for a shrinking core of customers hanging on mainly because they are too lazy to change their AOL.com e-mail addresses.
This year, AOL is expected to post revenue of about $3.2 billion, down 38 percent in two years. A majority of that revenue is advertising, but AOL’s 6.2 million remaining customers for its dial-up Internet service are highly profitable and the most avid readers of its content. About 200,000 of them cancel service every month.
Mr. Armstrong and a core group of managers brought from Google are trying “to change the DNA of the company,” in the words of Jeffrey A. Levick, a longtime aide to Mr. Armstrong who is now the president of AOL’s advertising unit.
“People put numbers on the board and I say, ‘You are missing a lot of zeros and a lot of commas,’ ” he said. “I don’t think people have talked that way around here since the days of Steve Case.” Investors just see zeros when they think about the potential value of an independent AOL.
“Expectations from myself and Wall Street for AOL are still dire,” said Richard Greenfield, an analyst with Pali Capital. Still, he said the choice of Mr. Armstrong to run the company “is far better than we would have expected.” And if Mr. Armstrong leads even a modest turnaround in AOL, it “could surprise people and lead to substantial upside.”
The market value of AOL after the spinoff to Time Warner shareholders will depend on how much debt Time Warner saddles it with. Mr. Greenfield said AOL may be worth $2 billion to $3 billion, far less than its $20 billion valuation in 2005, when Google invested $1 billion in it — a deal Mr. Armstrong helped negotiate.
Mr. Armstrong has long thought big. Mr. Levick worked at an advertising agency in Chicago when he met Mr. Armstrong, who was selling an early form of advertising for a tiny search engine named Google.
“Here was a man standing at a whiteboard drawing the picture of all advertising all coming in through one place, Google,” Mr. Levick said. “I don’t think even anyone saw how big this was going to be, but Tim’s plan was for this to be bigger than anyone’s wildest imagination, even the people at Google.”
Despite having the wealth that comes with being one of Google’s early employees, Mr. Armstrong, 38, said he was lured to AOL create a new kind of media company. “One of the biggest challenges in the media business is also one of the biggest opportunities,” he said. “If you tried to recreate AOL’s assets, it would be incredibly expensive.”
Before Mr. Armstrong can move forward with his strategy, he must stabilize AOL’s ranks. In the last three years, the company has had three chief executives and five heads of ad sales.
Mr. Armstrong’s regular Tuesday product reviews include the people who build and operate each product as well as their bosses. The all-hands meeting on Friday, which will be Webcast to all employees, will be the third such event he has held.
Mr. Armstrong’s five-point plan was also determined by a collaborative process in a two-day meeting in New York. The top 100 employees sorted through three dozen current and potential business lines for the company.
Mr. Armstrong asked simply, “What can we win?” Among the hot debates were what AOL’s role should be in social networking and in search.
Eventually, the assembled employees voted on their top five ideas. Separately, Mr. Armstrong wrote his top five on a blackboard, turning it so the audience could see it only after the vote. The only difference: Mr. Armstrong wanted to include AOL’s Truveo video search company in the top priorities. But he deferred to the group and assigned Truveo instead to a new unit called AOL Ventures, where he is putting noncore businesses, like the Bebo social network, that might eventually be sold.
Mr. Armstrong’s plan is to compete directly with Yahoo, Microsoft and Google to become the dominant network for display ads. Mr. Armstrong says the company’s technology, with the data it has on millions of consumers accumulated over nearly 25 years, will give it an edge.
“Nobody owns the display space today,” he said.
Where Mr. Armstrong will find much less competition is content, which most Internet companies find too expensive to produce. AOL already operates more than 70 specialized blogs, including Boombox (on hip-hop music), WalletPop (on personal finance) and Paw Nation (on pets).
Mr. Armstrong wants to cover more topics in more countries with much more video.
The combination of specialized content and display advertising, he said, should make AOL appealing to large consumer products companies with big marketing budgets like Procter & Gamble.
“If you ask P.& G. what companies have the products that make you feel most comfortable, with the best content and the best targeting, AOL is already on the list today,” Mr. Armstrong said. “Our aim is to move AOL to the top of the list.”
. The best freemium models allow anyone to use the service for free and then convert the most serious/frequent/power users to paying customers.