AOL's Tim Armstrong turns skeptics into believers

July 23, 2009: 5:54 PM ET

If new AOL CEO Tim Armstrong keeps talking, the company just might reemerge Phoenix-like on the Internet landscape. At least that's what the results of audience polling showed at Fortune's Brainstorm Tech conference Thursday.

Fortune's David Kirkpatrick opened the interview by asking whether AOL would slowly "run out of juice, remain profitable but not a significant industry force,  or return to health as a major Internet player." Using devices provided by SpotMe, 47% of attendees voted against the onetime Internet giant. By the end of the dialogue, that number had dropped to 30%, while those who believed AOL would be a player jumped from 53% to 70%.

Armstrong's successful pitch outlined five key focus areas for AOL going forward: content management, display advertising, local and mapping applications, messaging services, and AOL ventures.

The plan to develop new systems around content management is one of the freshest and most intriguing pieces of Armstong's turnaround strategy. He calls it a "Silicon Valley approach to content."

"One thing that has worked very well for Google, is they did a good job of building systematic plumbing approach to advertising, that's what we'll bring to content," explained Armstrong. While there has been large-scale investment in ad systems, Armstrong sees white space for applying the same infrastructure to content.

Armstrong also hinted at a new strategy for monetizing its robust audience of instant messenger users. "Facebook users still use AIM," he said. "Kids use it because it actually works very well." But where the old strategy was to get these users to go online and look at AOL's ads, Armstrong said he'll take a different approach in the future. He stopped short of saying what that would be, but he emphasized user experience--a central component of the overall plan.

In overhauling Mapquest, for example, he is drilling down to make sure he has the right engineers in place coding the map site. And he's touting a return to analyzing metrics that will provide real-time feedback on what's working and what still needs improvement.

Armstrong says AOL will also benefit as current economic pressures accelerate companies' transition to the Web, thanks to its efficiencies and measurability. "The recession has made companies speed up their look into the digital landscape," he said.

Armstrong referred to the "two dump trucks" companies can put their advertising dollars in: new and old media. As they put more in the "Internet truck," he hopes the size of AOL's offering can get marketers to stop and "back the truck into our driveway."

As for the $2 billion worth of acquisitions Armstrong is tasked with integrating, those that haven't turned out to be as "synergistic" will be siloed in the AOL ventures unit where they'll be given a chance to grow. This includes social network Bebo, purchased last year for $850 million. Much had been made of Bebo's potential integration with AOL's IM platforms. "Theoretically IM and social networking work well together but they have to be the right ones," Armstrong said. "The bet we made is that Bebo will do better in ventures."

When Armstrong came on as chief of AOL in April, leaving his post as Google's (GOOG) head of advertising, he received a list and was told, "'Here's the companies we're selling.'" (Real time news search site Relegence and video search site TruVeo were on the chopping block). He was also asked to sign a $400 million check. He refused on both accounts. "We're taking the investment-divestitures space very methodically," he affirmed.

Makes sense, given that AOL is in the process of being divested itself. In May Time Warner (TWX)announced it would split off the company, bringing closure to the 2001 merger that came to epitomize the misdirected frenzy of the Internet boom and bust.

Armstrong's appearance at Brainstorm marked the end of his first 100 days on the job. During this time he has been on a worldwide tour, meeting with 6,000 of  AOL's 7,000 employees. His goal was to listen. Since then, 96% of employees responded that they agreed with the company's strategy. Explained Armstrong, that's because "it wasn't dictated to them, it was groundswell." Armstrong will reveal specifics plans and goals to employees tomorrow at a meeting in Dulles, Virginia.

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