BackArmstrong dares to dream of a resurgent AOL
Armstrong dares to dream of a resurgent AOL
PremiumFive-point strategy: Tim Armstrong, CEO and chairman of AOL, wants the weary and beaten-down company to grow again. Rick Wilking / Reuters
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."
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, 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 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 email addresses.
This year, AOL is expected to post revenue of about $3.2 billion, down 38% 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.
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 long time aide to 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 Armstrong to run the company “is far better than we would have expected". And if 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. 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 Armstrong helped negotiate.
Armstrong has long thought big. Levick worked at an advertising agency in Chicago when he met 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," 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, Armstrong, 38, said he was lured to AOL to 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 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.
Armstrong’s plan is to compete directly with Yahoo, Microsoft and Google to become the dominant network for display ads. 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.
The combination of specialized content and display advertising, he said, should make AOL appealing to large consumer products companies with big marketing budgets such as Procter and Gamble.
©2009/THE NEW YORK TIMES
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