When Tim Armstrong arrived at AOL in March 2009, employees were ecstatic—so much so that some adorned the company’s walls with posters featuring Armstrong’s image above the word Hope, modeled after the famous campaign posters of a certain president.
Like President Obama, Armstrong’s arrival was followed by a celebrated first 100 days. The much-maligned company was ready for change it could believe in after the disastrous Randy Falco and Ron Grant era—AOL’s Bush and Cheney. “Ron and Randy were not well-liked guys,” said a former AOL staffer. “So when Tim came in, people were literally jumping up and applauding. The guy comes in; he looks like Superman. It felt like a coronation.”
But the believers’ faith has been severely tested. While many are still devoted to Armstrong and his vision, some former supporters question his readiness for the role and his ability to stick to strategy rather than reacting to changing conditions on the ground. Some have even questioned whether Armstrong really wants this job and believe that Armstrong is using AOL to paint himself as a turnaround hero—someone who should be the next CEO of giant media company X.
Last week, Armstrong made his most daring move yet, as AOL acquired The Huffington Post for $315 million, while putting founder Arianna Huffington in charge of editorial operations. It remains to be seen whether this move will become Armstrong’s Sputnik moment or his stimulus bill.
What seems clear is that this move is about Armstrong creating a new platform, and perhaps destiny, for himself, cobbled from the inchoate parts of AOL and the headliner brand of his new partner. His hope may be to create The Armstrong Post.
As soon as he began his prespinoff tour in ’09 to meet with investors and advertisers, Armstrong was preaching the new AOL mantra: content, content and content. Premium advertisers. The biggest display ad company on the Web. But questions about his commitment are in the air. When asked to grade Armstrong’s execution of his strategy, one former staffer replied, “Which one?”
Indeed, some of Armstrong’s recent moves have been puzzling. He dumped promising, very non-AOL brands like Asylum and Lemondrop, while pushing Seed—the company’s freelance-heavy, search-driven content business. In the last six months, he’s partnered with the Jonas Brothers on a teen site, hired Heidi Klum as a contributor and agreed to host Ellen DeGeneres’ site. Last month he shut down AOL FanHouse, outsourcing sports to second-tier player Sporting News.
In the midst of all these moves, he bought TechCrunch and The Huffington Post. And then there was the AOL Way, a presentation on forecasting traffic and profitability potential for each article the company produces that found its way into the hands of The Business Insider. So is AOL about premium content or cheap traffic? Is Armstrong’s strategy to build, partner or buy?
Of course, nobody thought fixing AOL was going to be easy. The company’s former cash cow, its dial-up business, has been dying a slow death for years. Its search business is tanking. The popular image of AOL’s users? That’s the way grandma goes online. Like the U.S. economy, it may be that AOL’s issues were more severe than Armstrong imagined. “I give him a ton of credit for making bold moves,” said Bryan Wiener, CEO, 360i. “But it’s possible he underestimated the huge challenge he’d face.”
Wiener lists the decline of AOL’s subscription business and the impact of ad exchanges on Advertising.com as two hindering forces. But perhaps the biggest headwind is coming from “changing market dynamics,” said Wiener. “Advertisers want to be on media properties with highly engaged audiences. Portals have drive-by customers.”
That’s where recent acquisitions TechCrunch and HuffPo should help. Both boast of highly engaged, loyal audiences. And both were born on the Web—and thus don’t have legacy costs. “There has always been this interesting kind of gap between offline quality journalism and content native to the Web,” said Rob Norman, CEO of GroupM North America. “These two are about as close as we have. They’re kind of legit . . . If AOL in its previous incarnation didn’t exist, it’s possible that you might look at it now and say, ‘Oh my goodness, they are a serious contender.’”
Fueling the idea that Armstrong, 40, is angling to be CEO of some other media company are a pair of recent reports regarding Yahoo. At one point Armstrong was said to have been pushing Yahoo to buy AOL and put him in charge. Then there was the story about a group of private equity firms looking to team with AOL to buy Yahoo—despite the latter’s market cap of over $22 billion.
Media bankers doubt that the HuffPo acquisition was about setting up AOL to be acquired. “That’s not necessarily the asset I’d pick up to set up a sale,” said Jay MacDonald, managing partner, Digital Capital Partners. “A company that has $30 million in revenue is not a game changer.”
Ken Sonenclar, managing director at DeSilva + Phillips, agrees. “Ultimately, I don’t know what Tim’s plan is,” he said. “He’s a very wealthy man. He’s not doing this for the money. But selling AOL any time over the next 24 months, before these bets have a chance to pay off, is not going to show a return. You don’t want to buy it and undo it.”
So what is the HuffPo deal about? Undoubtedly it provides AOL with more credibility, for one thing, and massive sales clout. It also made Armstrong look like a rock star, at least for a week.
“Huffington Post is a very hot brand,” said Armstrong, who owns the Boston Blazers—a professional lacrosse team—and is a founder of the fledgling pro football league, the UFL. He hopes some of that heat transfers to AOL’s properties. “One of the things we are really interested in is their social engine,” Armstrong told Adweek. “That platform will roll out across AOL.”
An even bigger opportunity—some would argue it’s also a daunting challenge—lies in ad sales. AOL already had high reach and a lot of inventory to sell. And its ad revenue has been nosediving ever since Armstrong got there even as the online ad industry thrives. During its most recent Q4, ad revenue fell 29 percent to $331.6 million.
Meanwhile, “Huffington Post’s sell-through rates are growing faster than they can sell ads,” said Armstrong, who’s clearly tired after taping interviews with CNBC, Charlie Rose and CNN in the previous 36 hours. AOL, which had been planning to increase its ad sales team by 30 percent to 40 percent, will now absorb all of HuffPo’s sales execs (minus chief revenue officer Greg Coleman, who Armstrong has twice canned).
“We are going to go to market with one of the biggest ad sales forces on the street,” said Armstrong, who claims that despite the lackluster numbers during his tenure, key AOL channels have started to bounce back. HuffPo will also start featuring AOL’s larger and more prominent Project Devil ads, which should appeal to big brands.
Despite AOL’s struggles, nobody thinks Armstrong is a dope. “He’s very focused, very ambitious and a very good leader,” said Norman. “He’s good at getting people on the same page.”
Some former Armstrong colleagues saw his CEO future coming years ago. David Scacco, one of Armstrong’s first employees at Google, recalls Armstrong giving each member of his team copies of the book, How to Become CEO: The Rules for Rising to the Top of Any Organization.
“As a manager, he’s incredible in terms of motivation,” said Scacco, now the chief revenue officer at the startup MyLikes. “He empowers people, and he’s truly interested in people as people.”
Scacco recalls multiple instances of Armstrong going to bat for his staff, promising to pay out of his own pocket if team members incurred extra costs. Armstrong also handed out envelopes full of cash one December, telling his sales team, “Use this for Christmas shopping.”
Sure, but wasn’t Armstrong just in the right place at the right time? Selling Google ads, just as the search ad business exploded, doesn’t mean you’re the next Bill Gates.
Scacco disagrees. “Outside of Omid [Kordestani, Google’s former svp for worldwide sales] he was the best hire they’ve ever made,” he said. “He built an all-star sales team in the Google hiring environment. I can’t stress enough how difficult that is. Back then, it was very hard to convince seasoned sales executives to sell text ads.
“I don’t think he’s angling to get bought or looking to become CEO of a bigger company,”
added Scacco. “I think he knows deep in his gut what this company needs.”
Armstrong brought his motivational talent and his inherent likability with him to his CEO role at AOL, and it got him far—for a while. But around the time the Seed project rolled out, his aura started to unravel. During SXSW, Armstrong berated his staff’s work publicly. “That’s not the kind of behavior you expect from someone who wants to be at AOL for 20 years,” said one former AOL exec.
As a CEO, Armstrong is also big on inspirational slogans, speeches, celebrities and parties—which doesn’t always go over well with jaded editorial staffers, especially when so many are being laid off. During his first weeks on the job, he visited nearly every AOL office. He lined up Martha Stewart and Warren Buffett to create kids cartoons for AOL projects.
Later he asked Erik Weihenmayer, the first blind man to climb Mount Everest, to address staffers, which puzzled some. “He treats the whole company like it’s a sales initiative,” said a former staffer. “That doesn’t work for content people.”
Many former and current AOL employees describe a rift that has formed between the content and sales teams under Armstrong.
“There is a huge disconnect,” said a former AOL editor. “They’d constantly tell us, we can’t sell your stuff. And then management wouldn’t give us the resources we need to build traffic. But then they’d throw another party.”
There is a lot of frustration over the guidelines imposed by the AOL Way, which lays out how many pageviews a story needs to break even. To some, Armstrong is going right back to the previous regime’s mistakes. “He’s gone from pageviews to uniques to pageviews again,” said one ex-AOLer. Some content staffers wonder why the pressure is being turned up on editorial and not sales. “A lot of people wonder, why is [sales head] Jeff Levick still there?” asked one insider.
The fact that the AOL Way leaked so quickly probably speaks to how much morale had tanked since Armstrong’s heady early days. “People at AOL are absolutely miserable,” said an ex-AOL exec. “Everyone has their resume out.”
That might be wise. Many analysts say that even after significant layoffs, at 5,000 people AOL is still far too large. Consider that HuffPo has only 230 paid employees. To reduce its size, the company could easily sell Advertising.com or other noncontent properties.
Regardless, expect Armstrong’s approval rating to take more hits. “To me he’s the quintessential first-time CEO,” observed another former AOL exec. Armstrong is learning on the job, and every little mistake plays out in public.
Some complain that as CEO, Armstrong can be emotional and even gullible. One ex-staffer described what insiders called elevator syndrome—whoever could get to Armstrong while riding the elevator to go home, could bend his ear and change his mind.
Going forward, if it hasn’t been already, AOL’s future is all on Armstrong—whether he wants it or not. “It’s his legacy,” said one exec.
That legacy, at least in the short term, is tied tightly to Huffington, who will run the blended companies’ editorial operations (Huffington was unavailable for comment).
But let’s see what Huffington, who’s accustomed to working with authors like Nora Ephron, thinks of Seed and the AOL Way. How hands-on does she really want to be in the daily output of channels like KitchenDaily.com and AOL Latino?
Said Norman: “What we don’t know is how difficult it will be for Armstrong to have an employee with $10 million in her pocket.”