Former Google key man Tim Armstrong is cutting deadwood, exploring new businesses and being trigger happy like how. But his current assignment at AOL could prove to be a career killer.
March 17, 2009: A crowd of 1000 employees has assembled in a large tent at the original Dulles, Virginia Headquarters of AOL. Tim Armstrong, Chairman & CEO, is about to make his debut speech. AOL founder Steve Case speaks briefly before him; without putting much stress on the bloodied past. Then, a 6 foot 4 inches tall Armstrong rises to the podium. The air is heavy with nostalgia with some employees wiping away tears, hoping that Tim’s speech would be enough to wish the bad years away. Armstrong gets a standing ovation; his speech does better. Happy days are surely here again...
Erm, not so fast. AOL has, after all, been a revelation in the manner in which it has managed to fall, from being an Internet giant to a firm that’s all but out of business. It started with the ill-fated AOL-Time Warner merger, and continued into regular strategic mistakes that the top management kept attempting despite warning signs. For all right reasons, Tim Armstrong, who is former head, Google Ad Sales, US, was the key figure responsible for driving revenues in the search engine’s bread and butter business. He took over the position of Chairman and CEO of AOL even as the giant began its demerger with Time Warner, which culminated in December 2009. For Tim, that time was perhaps one of the worst. Post the demerger, AOL has lost 20 million of its 26 million paid subscribers – even this remaining figure is consistently dropping at the rate of 3% per annum – and has been left with a market cap of $2.68 billion. Still, customer satisfaction has paradoxically increased. Foresee Results’ 2010 American Customer Satisfaction Index (ACSI) had AOL see a 6% y-o-y increase in customer satisfaction and a 32% increase in satisfaction since the same was first measured in 2002 (Foresee Results told B&E through its communiqué that their analysis “suggests that usually when an industry laggard reports increased customer satisfaction, its because all of its customers have left except for the truly loyal and satisfied base...”).
Although Armstrong has been trying hard to bring the beleaguered giant back on track, his various restructuring attempts are resulting in further reds in the balance sheet. For the quarter ending June, AOL posted revenues of $584.1 million, a drop by 26.54% yoy. AOL’s US display advertising was down by 7% and the international counterpart of the same went down by almost 52%. This was as a result of Tim shutting down AOL offices in Germany and France. But the more surprising blow came from the search and advertising business, which Tim is trying hard to not lose – the quarter ending June saw a business downfall of 27% yoy. This was despite the fact that Internet advertising revenues in the US during the same quarter were up by 14% (as per PwC). In all, AOL slipped to a loss of $1.6 billion compared to a profit of $153.7 million the previous year. The key factor was the goodwill impairment cost of $1.4 billion arising out of the $10 million sale of social networking site Bebo, which AOL had bought for $850 million! Armstrong still put on a brave face, as he said, “In the second quarter, we continued our efforts to successfully reposition AOL for growth and the company is getting healthier every day.”
March 17, 2009: A crowd of 1000 employees has assembled in a large tent at the original Dulles, Virginia Headquarters of AOL. Tim Armstrong, Chairman & CEO, is about to make his debut speech. AOL founder Steve Case speaks briefly before him; without putting much stress on the bloodied past. Then, a 6 foot 4 inches tall Armstrong rises to the podium. The air is heavy with nostalgia with some employees wiping away tears, hoping that Tim’s speech would be enough to wish the bad years away. Armstrong gets a standing ovation; his speech does better. Happy days are surely here again...
Erm, not so fast. AOL has, after all, been a revelation in the manner in which it has managed to fall, from being an Internet giant to a firm that’s all but out of business. It started with the ill-fated AOL-Time Warner merger, and continued into regular strategic mistakes that the top management kept attempting despite warning signs. For all right reasons, Tim Armstrong, who is former head, Google Ad Sales, US, was the key figure responsible for driving revenues in the search engine’s bread and butter business. He took over the position of Chairman and CEO of AOL even as the giant began its demerger with Time Warner, which culminated in December 2009. For Tim, that time was perhaps one of the worst. Post the demerger, AOL has lost 20 million of its 26 million paid subscribers – even this remaining figure is consistently dropping at the rate of 3% per annum – and has been left with a market cap of $2.68 billion. Still, customer satisfaction has paradoxically increased. Foresee Results’ 2010 American Customer Satisfaction Index (ACSI) had AOL see a 6% y-o-y increase in customer satisfaction and a 32% increase in satisfaction since the same was first measured in 2002 (Foresee Results told B&E through its communiqué that their analysis “suggests that usually when an industry laggard reports increased customer satisfaction, its because all of its customers have left except for the truly loyal and satisfied base...”).
Although Armstrong has been trying hard to bring the beleaguered giant back on track, his various restructuring attempts are resulting in further reds in the balance sheet. For the quarter ending June, AOL posted revenues of $584.1 million, a drop by 26.54% yoy. AOL’s US display advertising was down by 7% and the international counterpart of the same went down by almost 52%. This was as a result of Tim shutting down AOL offices in Germany and France. But the more surprising blow came from the search and advertising business, which Tim is trying hard to not lose – the quarter ending June saw a business downfall of 27% yoy. This was despite the fact that Internet advertising revenues in the US during the same quarter were up by 14% (as per PwC). In all, AOL slipped to a loss of $1.6 billion compared to a profit of $153.7 million the previous year. The key factor was the goodwill impairment cost of $1.4 billion arising out of the $10 million sale of social networking site Bebo, which AOL had bought for $850 million! Armstrong still put on a brave face, as he said, “In the second quarter, we continued our efforts to successfully reposition AOL for growth and the company is getting healthier every day.”
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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