By Mike Shields
When Tim Armstrong took the reins at AOL in 2009, he had a clear plan: AOL was going to be a top-notch digital content company that would lure premium marketers to its properties. He put the company’s considerable cash pile to use acquiring TechCrunch in 2010 and The Huffington Post in 2011.
But somewhere along the way, Mr. Armstrong saw the ground shifting in the digital advertising business, and smelled an opportunity. Advertising was about to become more “programmatic”– that is, bought and sold through powerful software driven by rich data.
And he jumped in, with a spree of acquisitions and investments that catapulted AOL to the upper ranks of the ad tech sector, including a $405 million deal for the video ad exchange company Adap.tv in 2013 as well as the Web content personalization startup Gravity in early 2014.
Such bets by Mr. Armstrong paid off handsomely, when Verizon Communications pledged to plunk down $4.4 billion for the company. Verizon executive John Stratton said the phone giant’s “principal interest was around the ad tech platform.”
“Tim has some traits that are critical for leading a company in digital media,” said Bryan Wiener, chairman at the digital agency 360i. “You have to have a vision, you have to be able to sell that vision. And you have to have perseverance to overcome the naysayers. He wasn’t afraid to change.”
When Mr. Armstrong arrived at AOL, he’d just enjoyed one of the more charmed runs in advertising, serving as the president of Google’s Americas operation during a period when search advertising exploded.
AOL was searching for an identity. It had played the role of scrappy startup in the dial-up Web access business, Internet poster child, and eventually participant in the biggest and most catastrophic attempt to blend content and distribution – the ill-fated $165 billion merger with Time Warner. After being spun out from Time Warner, the company was trying to find a role in a world where mobile devices and social media were on the rise, and ad-supported online businesses were once again in vogue.
Mr. Armstrong arrived at AOL following the “Randy and Ron” era, when AOL was run by former NBC executive Randy Falco and former Time Warner executive Ron Grant. Among the duo’s most famous moves was spending $850 million on the social network Bebo–which was eventually sold back to its founder for $1 million years later.
AOL insiders describe Mr. Armstrong as someone who loves inspirational talks. The 44-year-old, whose dark wavy hair and boyish, chiseled features look one part superhero, one part Bond villain, speaks in metaphors and lofty goals. He talks of how AOL is going after “blue oceans” and “white space” and how its balancing of content and automated advertising is a “barbell strategy.”
“Tim thinks very big,” said Amit Kapur, president of AOL’s platforms group. “He made the decisions at the right moment before a lot of others folks did, when people were saying ‘what are you doing with this programmatic thing?’ He’s a strong leader, and he’s not afraid to take chance and make decisions.”
His tenure has been marked by a great deal of leadership turnover. And his management style has come under scrutiny at times. During an internal company conference call in 2013, he fired a Patch employee in front of hundreds of people — an episode that got tremendous public attention because audio of it was leaked.
Early last year, Mr. Armstrong created some more heat for himself during another internal gathering, during which he complained openly that two employees’ “distressed babies” had cost the company $1 million each.
Ad industry executives are remarkably forgiving of Mr. Armstrong. They credit him for helping built out Google’s ad business in the mid 2000s, when his job was to convince agencies that he wasn’t out to disrupt their businesses.
“People like Tim, without question,” said Colin Kinsella, North America chief executive for media-buying agency Mindshare. “They know that while he may misspeak, his head and heart is in the right place.”
While Mr. Armstrong deserves some credit for shifting gears midway through his tenure, he didn’t necessarily get religion on his own. He was nudged by activist investors. In 2012, under pressure from Starboard Value LP, Mr. Armstrong sold $1.1 billion worth of patents to Microsoft. But despite protests from Starboard, Mr. Armstrong clung to Patch, his experiment in local digital content, until he couldn’t hold on any longer.
Mr. Armstrong was able to fight off a push by Starboard to shake up his board of directors, but eventually he was forced to sell of the majority of Patch.
In an interview, Mr. Armstrong expressed his ongoing commitment to AOL–and sounded somewhat vindicated by the Verizon deal. He will stay on at Verizon after the deal.
“It’s a game changer for our business,” he said. “I’ve invested $25 million of my own money in AOL, and I’ve never sold a share,” he said. “I wasn’t looking to make a quick buck. The plan I had was to…take premium content and premium technology and put it together.”
Mr. Armstrong noted that AOL’s stock price has appreciated 147% since he took control of the company, outpacing the S&P 500. “Shareholders have gotten to enjoy the turnaround of AOL,” he said. AOL’s earnings reports show progress: its “third party platforms” business, the group that helps other publishers sell ads, while not always profitable, has been consistently delivering double digit revenue growth, while the company’s “brand group,” which contains AOL’s own media brands like Huffington Post and TechCruch, has slipped.
But it’s also worth noting that when AOL spun off from Time Warner in 2009, its market capitalization value was at around $2.5 billion. Verizon is paying $4.4 billion six years later. During those past six years, the online ad industry continually enjoyed double digit growth. AOL’s share of the $50 billion digital ad market in the U.S. was 2.1% in 2014, according to eMarketer, down from 2.3% in 2013.
Despite AOL’s weak points, Verizon CEO Lowell McAdam saw big opportunity in a tie-up. The companies began their flirtation last summer at the Allen & Company media conference in Sun Valley, where they were exploring a possible joint venture involving content and programmatic advertising, according to a person familiar with the matter. “It (the flirtation) kept evolving into something bigger and broader.”
Mr. McAdam expressed his desire to “own the whole thing” in early April, though his idea was “very vague” at first the person said. Over the past week, AOL’s board met “almost every day” as negotiations entered their final state. Directors gave final approval for the proposed takeover when they met in person in New York on Monday, this person added
Nowadays, Mr. Armstrong speaks less about content and more about boldly about challenging Google and Facebook in the battle for ad tech supremacy. The Verizon deal, he says, “gives us a real seat at the table for the future of media and technology.”
Read on the Wall Street Journal: http://blogs.wsj.com/cmo/2015/05/12/aol-ceo-tim-armstrongs-pivot-to-ad-tech-pays-dividends/