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AOL Hopes New Leadership Will Spur A Turnaround

May 24, 2009

AOL’s hiring of former Google executive Tim Armstrong is the company’s latest effort to salvage it’s future after suffering a decade of dwindling profits, The Associated Press reported.

While AOL’s operations still make money, the company’s legacy business, its dial-up Internet service, continues to suffer and its newer online advertising service has been slow to catch on.

Time Warner, which AOL bought in 2001 for $147 billion, is looking into formally separating itself from AOL by spinning its Internet division off into a standalone business.

Armstrong was a senior vice president in charge of Google’s North and South American advertising operations and AOL believes he will provide the change the company needs with his open management style.

Armstrong’s arrival has thrilled employees who were unhappy under his predecessors, who were widely considered out of touch and out of place.

AOL had 26.7 million dial-up subscribers at its peak in 2002. Even as recently as 2006, dial-up was a $5.78 billion business for AOL.

But as more and more consumers move toward faster high-speed options, AOL’s Internet access revenue was down to $1.93 billion, and now AOL counts just 6.3 million dial-up subscribers.

AOL began shifting from its origins as a “walled garden” with subscriber-only content in 2004 to an online destination where most of its news, music videos and other features were free, and supported by ads.

In order to keep customers from moving over to competitors like Google and Yahoo, AOL beefed up the freebies in 2006 by giving away AOL.com e-mail accounts and software that consumers once had to buy.

AOL also began to realign itself around three core businesses meant to bring in revenue from online advertising: Platform-A, which sells ads for AOL sites like celebrity gossip blog TMZ and for third-party sites; MediaGlow, which includes numerous Web sites and blogs such as Moviefone and Engadget; and People Networks, which houses the AIM instant messaging service and other social media properties.

However, the transition has been slow and not without obstacles. After several strong quarters early in the shift to free content, AOL’s online advertising growth slowed and then reversed.

After advertising revenue rose from $1.89 billion to $2.23 billion in from 2006-07, it dropped to $2.10 billion in 2008. Ad revenue also fell 20 percent in the first quarter of this year.

Platform- A, which was formed in 2007 and includes several online ad companies AOL has acquired over the years, has suffered from lots of turnover in its short life span.

Along with new leadership and a new company attitude, Armstrong’s challenge will be to figure out a better way to make money off the busy traffic AOL’s Web sites gather.

comScore Media Metrix showed that AOL’s various online properties averaged 106 million unique U.S. visitors each month during the first quarter””ranking the company fourth behind Google, Yahoo and Microsoft Corp.

John Buckley, who left as AOL’s head of media relations shortly after the former CEO departed, said the fact that AOL has a large audience and makes money means wise leadership should be able to extract value from it.

But among Google and all of the top four, AOL was the only company to see a year-over-year drop in traffic in the first three months of the year, averaging 110 million visitors in the first quarter of 2008.

AOL’s operating income suffered a 47 percent fall from the year-ago quarter, totaling $150 million.

Kevin Lee, CEO of search marketing firm Didit, believes Armstrong has some serious work ahead of him.

Armstrong has been spending his first months visiting AOL’s 7,000 employees around the world, scrutinizing AOL’s products and garnering feedback that will be used to form a strategic plan to get the company back on a money-making track.

Armstrong told employees AOL needed a mission that is reflected in its products.

“We have a huge advantage in this effort because we touch so many consumers each day, and they will take notice of our renewed focus and energy,” he wrote.

In early May, AOL launched an internal survey hoping to get comments on what the company’s goals should be, and over 1,000 people responded to the survey in its first week.

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