Aol is losing the “Running Man” logo. Too bad it can’t outrun its past.
After eight tumultuous years, Time Warner will spin off AOL — er, Aol — next week as a separate company, ending a disastrous merger that was heralded as the ultimate fusion of old and new media at the height of the Internet bubble — but . . .
Chief Executive Tim Armstrong has spent his first year on the job preparing Aol for new life as a standalone company, but the struggling Internet icon faces all its old problems, plus a few new ones.
Armstrong’s biggest challenge is to find ways to grow a company that has seen nothing but falling revenue and internal tumult for years. Aol’s total revenue fell 23 percent, to $777 million, in the third quarter. The results reflected a 29 percent drop in subscription revenue and an 18 percent decline in ad revenue.
Despite numerous makeovers and grandiose visions, including the new lower-case logo, Aol is still seen as the Internet laggard.
“My belief is that the window of opportunity to truly monetize Aol has passed them by,” said one Time Warner investor. “It’s a deteriorating asset.” A former top ad executive at Google, Armstrong is well-respected in Internet circles, but few believe he can transform the ailing Aol into an online powerhouse. He is grappling with years of management turnover, staff layoffs and a noxious culture that resists new ideas and innovation.
For example, Armstrong has implemented an open-door policy in hopes of generating ideas and new formulas for creating new and exciting content on the various Aol sites. But old-guard middle managers, who run the day-to-day operations — and help produce some of the standard, underwhelming content, are loath to take up the new boss on his policy, insiders tell The Post. They have seen leaders come and go from the corner office, they said, and therefore keep their distance.
Meanwhile, Armstrong is stuck with Aol’s fading Internet-access business. Once the global leader, boasting upwards of 30 million dial-up subscribers worldwide, Aol has seen that number dwindle to a mere 5.4 million. At the same time, he must complete Aol’s transition to an ad-supported business during an advertising slump.
In an effort to reinvent itself as an “advertising platform,” Aol embarked on a spending spree a couple of years ago, snapping up a number of ad-centric firms such as Quigo, Tacoda, Adtech and Lightningcast.
The buying binge culminated in the $850 million purchase of Bebo, an also-ran in the social-networking space. Industry observers said the strategy seemed solid at the time, but management wasn’t able to integrate the businesses, and the resulting turf wars led to an exodus of talent.
“They made the right strategic moves and for one reason or another they weren’t able to keep the entrepreneurs or visionaries to take the company to the next level,” said Linda Gridley of Gridley & Co., a boutique investment bank.
Since his hiring in March, Armstrong has moved quickly to cut costs, including plans to lay off one-third of the workforce, and bring in fresh leadership — most of it poached from Google.
He has also mapped out a content strategy for the company that he hopes will differentiate it from competitors. The new plan calls for Aol to roll out more niche Web sites in the usual areas — from business news to sports, to build its audience and grab more ad dollars.
That has won him some praise on Wall Street. “Aol’s strategy under [Armstrong] is more aggressive than recent efforts toward both cost-cutting and content differentiation,” Barclays analyst Doug Anmuth wrote in a recent report.
At the same time, however, even those who see a ray of hope give Armstrong long odds of succeeding, saying his content-creation strategy will be difficult to pull off “in an increasingly competitive online advertising space and with declines in unique visitors and page views likely to continue.”
Perhaps Aol shouldn’t be written off as a total disaster-in-waiting. It still has massive reach, ranking as the fourth largest online service, by audience, behind Google, Yahoo and MSN, with roughly 100 million unique monthly users.
“Armstrong has to be able to find ways to cash in on that audience,” said Benchmark Co. analyst Frederick Moran.
One way to cash in on the audience would be to sell it and the furniture and the entire company to a rival firm. To that end, while Time Warner said it hired Armstrong to run Aol as an standalone company, some investors believe he is really setting it up for inevitable consolidation among the other major Internet players, including Yahoo!, Microsoft and IAC’s Ask.com.
“It’s a diseased business,” the investor said. “The only way to cure it is to put it with something else.”
Armstrong’s first steps:
* Seed.com: an in-house name for program to generate freelance content, which is awarded to the lowest bidder.
* Hiring 2,500 journalists to run the company’s 75 sites.
* Paying writers based on number of hits their stories receive.