Tim Armstrong: No more dial-up welfare at AOL

As you may have heard by now, this is the week that AOL decouples from Time Warner and spins off as an independent venture. CEO Tim Armstrong marked the occasion with a keynote Q&A session at the UBS Global Media & Communications Conference, where he delivered answers polished to a high gloss by his recent investor road show.

Armstrong was gentle but unequivocal in his criticism of the company's pre-2009 strategy and management. In particular, he said, the cash generated by the highly profitable but fast-shrinking dial-up access business has too long served to paper over, or even enable, inefficiency across AOL (which, for the record, owns DailyFinance). "The other part of the company got loose in terms of how it was using assets," he said.
He repeatedly called out the company web-services divisions for failing to pull their own weight, and suggested that fixing them may require running them as though the profits from the dial-up business didn't exist. "Healthy companies throw off cash," he said. "What you should be focusing on is, how does the web services business throw off cash?"

Two important businesses, AOL Mail and MapQuest, have both been mismanaged, though in different ways, he said. The former was "overrun by monetization," driving users away. ""The first day I started, I logged into AOL email and I got 15 to 20 ads, some of them pop-ups," he said. "When you sent a nice message to your friend, you usually sent them a nice ad as well, and that's not really a nice user experience." He added, "It's kind of product hygiene."

MapQuest, meanwhile, was the victim of technological neglect, which, in turn, relates to a failure by AOL to recruit top engineers. That issue, he said, is being addressed aggressively. "Engineers love to solve big problems, and AOL is a big problem on that side," he said. "If anyone in this room has relatives who are engineers and who are good, send them to AOL. We'll make them very happy."

But while it may be looking to hire geeks, AOL is also in the midst of a huge workforce reduction, one that will shrink the company's payroll by 2,500 employees. That downsizing, Armstrong said, is the reason he declined to accept a bonus of between $1.5 million and $4 million he was due for 2009. "I don't think I should've gotten paid for laying off a third of my employees," he said.

"We are running the company in a very rigorous way," Armstrong added. "I think the morale at the company has turned around a lot, even with the reductions."
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