What Tim Armstrong Brings to the AOL Table

Industry Watchers Guardedly Optimistic Former Google Exec Can Repair Portal's Reputation

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NEW YORK (AdAge.com) -- What does new Chairman-CEO Tim Armstrong bring to AOL? A reason for advertisers to take it seriously again.

Tim Armstrong, speaking at the 2008 4A's Media Conference.
Tim Armstrong, speaking at the 2008 4A's Media Conference. Credit: Art Beaulieu
And while that won't automatically "fix" the beleaguered portal's business, it helps AOL get over what is potentially its biggest hurdle: a frightful public perception.

"It's a reason for all of us in [the marketing] community to take a second look at AOL," said Bryan Wiener, CEO of digital agency 360i. "If Tim believes there's hope, this could be an asset."

Dealing with its legacy
The portal has been eager to claim small victories this year in developing new ad-supported online properties through its newly established MediaGlow division, but AOL has not had an easy time of it lately. Its fourth-quarter ad sales were down 18% to $113 million, and display ad revenue was down 25%. Its legacy as a dial-up business with abysmal customer service still haunts it, and that former CEO Randy Falco went through three different sales chiefs in his tenure hasn't helped it build continuity and credibility with marketers.

As a former TV executive, Mr. Falco was criticized as having little internet experience when he took on the role back in 2006; his former sales chief, Lynda Clarizio, was criticized as having little experience selling to big brand advertisers and their agencies.

Consider that problem fixed with the addition of Mr. Armstrong, who launched Google's ad-sales operation back in 2000 and built it into a $22 billion-a-year business, devouring market share from its portal competition, as well as offline media, particularly newspapers and print.

"He will be able to make decisions with the credibility of someone who has led the most successful advertising ramp-up in world history," said Tacoda Systems founder and former AOL exec Dave Morgan.

A shock to many
Mr. Armstrong's move was a shock to many in the ad industry. It wasn't so much that he left Google, where he'd been for almost nine years -- his name regularly surfaced for CEO-level jobs, such as Yahoo. It was where he ended up.

But for all of AOL's travails, it doesn't lag the Nos. 2 and 3 internet leaders, Yahoo and Microsoft, by much in many of the key metrics. Sure, it has little search business, but that means Mr. Armstrong will be able to work with, rather than against, his former employer.

AOL's Platform-A network, which reaches 91% of U.S. internet users, beats the reach of both Yahoo and Microsoft and their networks. AOL properties on their own reach 57% of U.S. internet users, just 1% less than MSN/Windows Live. And AOL has shown it can launch, buy and build online content businesses.

Its text-ad network, Quigo, is competitive, and while its social network Bebo is small in the U.S., it has a large footprint in lucrative parts of Europe. Additionally, some buyers have told Ad Age the portal's service has improved in the past few months while others have slid.

But a few industry watchers aren't so sure a new CEO will be enough. "We think the fault lies in the assets and not the management," wrote Michael Nathanson, advertising analyst at Bernstein Research, in a note.

Downturn is AOL's advantage
While the economy has decimated AOL's business, it could actually help Mr. Armstrong both by giving him some cover to make hard decisions and to keep expectations low for at least the next 18 months. In a downturn, AOL's scale is an advantage, because it still churns a lot of business, and it can maintain relationships with a lot of advertisers that could bear fruit when the ad market comes out of recession.

"You could only imagine they must have the germs of a very interesting strategic thought about what to do for AOL [to lure him there]," said Rob Norman, CEO of Group M Interaction.

Google exercised its option to have Time Warner buy back its 5% stake in the company, or to spin off AOL as a public company. Time Warner executives said there's no established timeline for either outcome, but that the appointment of Mr. Armstrong makes a spinoff appear more likely. That would start to unwind a very troubled relationship between Time Warner and AOL and a disastrous one for shareholders that began in 2000; at the time, it was the largest corporate merger in history.

As Rich Greenfield, an analyst with Pali Research, blogged, "While it is impossible to know whether AOL can be fixed (hopefully Armstrong's first decision will be to change the name, AOL is simply toxic), TWX investors will be excited by the potential of stabilizing and/or fixing AOL."

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