Business Today
"No one owns the future of the Net"
As the US head of ad sales at Google from 2005 to 2009, Tim Armstrong had a spectacular innings.

As the US head of ad sales at Google from 2005 to 2009, Tim Armstrong had a spectacular innings. He was the bridge between techies in Silicon Valley and the ad world centred around Madison Square in New York — and was instrumental in growing the search giant's revenues from $19 million in 2000, when he joined Google from snowball.com, to over $23.6 billion when he left.

Today, as CEO of America Online Inc., Armstrong, 39, has slashed costs and headcount at AOL. But the company still reported a 23 per cent decline in revenue and an even steeper 58 per cent fall in net profit in AOL'S first quarter of the current financial year. After a recent demerger from media powerhouse Time Warner, which played second fiddle to AOL in a $182-billion merger in January 2000, Armstrong is readying AOL for new opportunities in an ever-evolving Internet. Excerpts from an interview with Rahul Sachitanand:

Why did you leave a flourishing Google to join a floundering AOL?
What got me out of my chair at Google to AOL was a belief that the Internet of the future is going to be about deeper and richer Internet experiences. (AOL's) performance had been poor, but what I saw was the opportunity to connect the strong brand—and its suite of products— to where the Internet itself is headed.

The timing of your transition was interesting given the bitter parting between AOL and Time Warner. The numbers around AOL weren't good...
I think AOL has a global brand, which is an incredibly expensive proposition to build. There are only a handful of global brands right now. Second is the bouquet of properties AOL had. I came to AOL to not incrementally push it, but actually take a quantum leap forward. At this point no one owns the future of the Internet and who (at any given point in time) is successful keeps changing. Hopefully, it's our time to be successful again.

Do you think there are lessons for Indian companies from the mega AOL-TW merger that unwound? Are there any lessons from Google?
Google did a fairly good job of integrating its acquisitions. I think it takes a lot of planning and lot of energy and it's all about the people. I think the reverse of that was true with AOLTime Warner...I think the merger was all about people and there was a lack of willingness from both sides to make the deal work. And, that was a doomed merger.

AOL'S TWISTS AND TURNS

  • AOL's glory years were 1995 to 2000: revenues grew from $1 bn to $8 bn, audience from 4.8 million to 26 million.
  • Its "You've Got Mail" tagline was key in eponymous Tom Hanks-Meg Ryan starrer.
  • Positioned itself as a provider of Internet access and pioneered chat and conference rooms.
  • A $182-billion acquisition of Time Warner in January 2001 shot AOL to corporate fame.
  • Merged entity posts a staggering $98.7 billion loss for 2002—the biggest in US history at the time.
  • The spread of broadband made a big dent in AOL's dial-up access business.
  • AOL spun off from Time Warner in late 2009.
  • New CEO and former Google exec Tim Armstrong wants AOL to focus on premium content.

 

Soon after you joined AOL you cut headcount, slashed operating costs. Was such drastic action required?
I think AOL has to be competitive. AOL was not competitive at the cost base it was at and frankly it was a lot slower than it needed to be. I think by executing on the cost reduction ($300 million) we have a good shot at the turnaround of the company. Without this reduction it would have been incredibly hard.

How far down the road is this turnaround?
It is going to be a multi-phase turnaround. We are in the first or second phase right now and I would say we are less than half-way through the turnaround. I think we're on the right path and the remaining bit is focussed on execution.

One of the things you did to rescue AOL was to cut back on your international presence. Will you roll back into global markets now?
We cut back on some of the international markets to make sure we could refocus on our content and ad platforms. We are rebuilding much of this infrastructure and through 2010 we will re-launch in some of these markets in the next couple of years.

Is AOL still interested in acquisitions? You made a small one recently.
We don't want to bet the company's future on any one acquisition even if it's technology-based and tucks into our strategy. Studio Now, which was a deal we just completed, fits squarely with our company strategy and focus on online video, one of the most prominent areas of focus for the Internet.

You spoke about a $20-billion ad opportunity recently. Tell us more.
Consumers are migrating to the digital medium much faster than advertisers are. So, you have a case where advertisers need to transition this gap, estimated to be a $10-30 billion opportunity. We think it's about $20 billion. We believe we are well positioned based on what consumers and advertisers want...which is a deep, rich, content-based experience and one which is scalable. If we do a good job on this we can capture a fair share of the next phase of the Internet and online advertising dollars.

AOL seems keen on hyper-local search. How will this segment shape up?
There's already a business opportunity out there. I think hyper-local is important for two reasons. One, it has an impact on everyone's life, regardless of which industry you are in. Two, it's a market we think is under-served, with a large information gap, which we can target. Also, from a dynamic point of view, you have a large amount of information but you're seeing companies serving this industry start to limit their investments.

Will Indian local search—there are quite a few out there—make for competition?
Local for us is not a search play but a content play. We're putting a lot of infrastructure-investment into these communities... there's a lot of web-scraping and user-generated content, but we're creating high-quality curated hyper local content.

Are you hiring people to create this high-quality content or are you relying on someone else's content?
We will create it ourselves; we have a mix of people consisting of teams that get stuff online—we digitise a town before we start work on it— and then we drop a full time editor into the town to act as the local content creator-curator along with local freelancers.

You launched a new India portal aol.in in 2007. Given the global slowdown how has it performed?
The timing, in general, was a problem. We are looking at brands that can win. We plan launching significantly differentiated portal experiences in the future. We are going through the process in real time.

Are portals significant anymore in the age of Facebook and Twitter?
Portals are still relevant and they are also a growth category. There are certain Internet experiences that portals satisfy better. On the social networking side of things, the market is growing quickly and it's an opportunity for us to distribute content.

How does the mobile phone figure in your plans for India?
Our investments are focussed on platforms around feature-rich phones. We will focus on mobile-first platforms in India, since among the younger generation, the first experience of the Internet is on the mobile phone.

One of AOL's two global network operations centre is based in India. Where does the country really figure in your strategy?
India is an end-to-end market from consumer-facing products to network operations. India has been transitioning from—what started a decade ago–a customer service centre, which we sold to Aegis in 2003, to becoming our most sophisticated office in Bangalore in terms of talent and energy level.

Is AOL's biggest problem its perception as an American and not a global brand?
I think you will be surprised by that ...it was my perception too when I first came aboard. When you travel to Asia, West Asia and Europe you will find AOL is a global brand, recognised by people around the world.

How hard it is to sell your vision for AOL to investors who've seen the company at its peak?
We've spoken to them on roadshows and I think two things became clear. AOL investors tend to be long term and secondly we earned positive feedback for our new strategy.

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