‘Best Team’

12.23.13

Is Tim Armstrong the Lazarus of Aol.?

The CEO, used to favorable press, has found himself battered over the troubled Patch sites. He tells The Daily Beast why he’s still in love with Aol.’s brands—including HuffPo.

“I love the business we’re in. I love the brands we have,” Tim Armstrong says. “One of my goals is to double the size of the company in the next few years. We have to set a lofty goal.”

He is chairman and chief executive of an enterprise that over the past two decades has been variously christened America Online, AOL-Time Warner, just plain AOL, and now—after a modest alteration in logo and lettering with a declaratory period—Aol. Once the planet’s dominant Internet company, a $150 billion corporate behemoth, it’s a sliver of its former self today—less than 1/40th of its previous dimensions. In terms of market capitalization, it’s less than a 10th the size of Yahoo, its closest competitor, and less than 1/100th the size of Google, where Armstrong spent nine years as a groundbreaking advertising sales executive.

“Aol. is one of the best-known brands in the world, and that’s really an expensive proposition to build,” he tells me, explaining why he jumped at the chance to run the company nearly five ago when Time Warner CEO Jeffrey Bewkes offered it to him. “If you’re a fan of buy low-sell high, Aol. was a buy low-sell high proposition.”

Video screenshot

Resorting to rhetorical jujitsu, Armstrong says the fact that the industry “had just basically written it off” was irresistibly seductive. “It was attractive because in ‘Startup Land’ or ‘Internet Land,’ everyone is focused on shiny objects,” he says. “And there are assets on the Internet that have massive value to the world that would not get recognized in the shiny-object world, and I think Aol. is one of those assets.”

Tall, toothy, and angular, Armstrong, 42, is folded into the back seat of a black SUV barreling down the highway from San Francisco, where he’s been visiting the Aol.-sponsored TechCrunch Disrupt conference (named for the influential Silicon Valley blog that Armstrong purchased in the fall of 2010 for a reported $32 million), to Cupertino, where he’s scheduled to confer on new and existing partnership agreements with senior executives at Apple. “If you’re able to change the company from the inside out,” he says, “there’s an opportunity there.”

Aol. is a company with a history of bureaucratic violence. In the late 1990s, when the industry’s center of gravity was the sprawling headquarters in Dulles, Virginia, the corporate culture was riven by deep internal conflicts and warring factions backing Steve Case, the chief executive, and Bob Pittman, the chief operating officer. Even today, according to a former executive, there are remnants of ill will: “It’s surprising—it’s almost like the Japanese soldiers in the caves after World War II.”

“I don’t think anybody at the company would say that I’m not super-direct. Maybe you’ll find 100 people to say that, but they probably don’t work at Aol. anymore.”

Yet outwardly the company flourished. At the height of the Internet boom in 2000 and 2001, AOL acquired 55 percent of the Time Warner media and entertainment empire in a transaction that ultimately vaporized $125 billion in shareholder value. The merger remains the most catastrophic in history and, when Armstrong entered the picture eight years later, it was an embarrassing reminder of folly and mismanagement.

In early 2009, Bewkes persuaded the then-37-year-old Armstrong to leave his highly rewarding job running advertising sales at Google, where he’d built a wildly successful business and amassed an ample personal fortune, to take over Time Warner’s deeply troubled Internet subsidiary—by this point a sick stepchild that was still in the corporate ICU.

“I did say to him for the first year, ‘Are you mad at me for getting you into this?’ And he consistently said, ‘No, I wanted to do something like this. This is really interesting,’” Bewkes tells The Daily Beast. “Tim is totally comfortable with vastly changing and challenged circumstances. He doesn’t mind being on an adventure.”

It’s not hard to see why Armstrong would mesh with the 61-year-old Bewkes, a fellow gym rat whom the Aol. CEO occasionally runs into at a health club in Stamford, Connecticut, at their local supermarket with their wives, and sledding with their kids in Riverside, a cozy subdivision of the wealthy suburb of Greenwich where both men live.

Bewkes had been an internal skeptic of the merger, but after the implosion, his executive portfolio at Time Warner had included AOL—this at a time when Google had a 5 percent stake in the division along with an extensive advertising alliance. Bewkes, a no-nonsense, data-driven executive, occasionally had talked business with Google’s top ad salesman and liked what he heard. But he realized that Armstrong was taking over Aol. at a moment of maximum tumult after successive management teams had presided over precipitous decline—including the disastrous $850 million acquisition in 2008 of the British social network Bebo, which Bewkes had endorsed and Armstrong ended up unloading for less than 1/80th of the purchase price.

“AOL had a history of turmoil—rapid expansion and then rapid contraction,” Bewkes says. “That is always really hard on an organization when you don’t really have time to develop efficient, sturdy systems of decision-making and execution if you’re in rapid expansion, and then that gets further exacerbated if you have rapid contraction. And you need a leader who tries to get everybody to be calm, to take the long view, to think about what’s best for the company. That’s very hard to do when everybody is going through so much pain and confusion.”

Bewkes adds: “You’ve got to do difficult things—pulling back in some areas and at the same time trying to push people into going expansively into new areas. It’s kind of like walking and chewing gum at the same time. Tim’s pretty good at that.”

Armstrong’s time in the saddle certainly has been disruptive, to use a digital media buzzword. It has featured the December 2009 spinoff from the Time Warner mothership, belt-tightening layoffs of thousands of employees, eye-popping acquisitions such as $315 million for the journalistic website Huffington Post, and $405 million for video ad-buying service Adap.tv. There’s also been incessant internal reorganizations, a nerve-wracking proxy fight, a billion-dollar patent sale, and some promising developments mixed with painful disappointments—the most conspicuous of which is Patch Media, the hyper-local, hyper-costly collection of news and service sites that Armstrong had launched privately in 2007 and Aol. bought for a reported $7 million before spending hundreds of millions more. Another curious spectacle has been senior executives recruited with great fanfare only to be sent packing at dizzying velocity, usually with fat severance packages and strict nondisclosure agreements.

“Executive churn” has become a hallmark of Armstrong’s tenure. Among the high-profile execs who have come and gone—some by their own choice, others at Armstrong’s insistence—are chief financial officer Artie Minson, Huffington Post Media Group publisher Janet Balis, Huffington Post executive editor Tim O’Brien, Aol. chief marketing and communications officer Jolie Hunt (after only six months), Huffington Post communications and marketing czar Lauren Kapp (after only three months), and Aol. advertising chief Ned Brody—none of whom agreed to comment for this article. Brody’s departure, in April, was complicated not only by a non-compete clause that delayed his assumption of a top job at Yahoo but also by the repercussions of a June 2012 incident in which he accidentally dumped a fellow exec into a swimming pool while aiming for a different colleague during a company-hosted cocktail party in Cannes.

“My job is to put the best team on the field that we possibly can,” says Armstrong, who declined to comment on the swimming-pool incident. “There are people here that have been with me for a decade, pre-Google…On the reverse side of the churn, some of the world’s best entrepreneurs stayed with us.”

He mentions advertising sales executive Jim Norton, who followed Armstrong from Google and now is running Aol.’s worldwide sales division. He also cites Israeli video innovator Ran Harnevo, who after Armstrong bought his company, 5Min Media, for $65 million in September 2010, stuck around to run Aol.’s blossoming video operation—which recently surpassed Google’s YouTube in terms of streaming ads. Armstrong also touts this year’s hiring of former Aol. board member Susan Lyne, a seasoned media executive, to oversee the company’s content and brands (with the notable exception of the Huffington Post), and of digital marketing pioneer Bob Lord to run Aol. Networks, the company’s global advertising and technology division. “That,” Armstrong says, “is an upgrade for us.”

Armstrong is especially effusive about HuffPo founder Arianna Huffington, whom he calls a “world-class entrepreneur.” She reciprocates, telling me, “I love Tim.” He praises her for business savvy, ambition, and her ability to make partnership deals around the world, including HuffPo outlets in Europe, Asia, and South America. At weekly strategy meetings, he holds Huffington up as an example of entrepreneurial drive.

When Huffington, in her brief incarnation as head of all of Aol.’s content brands, wanted to fire TechCrunch founding editor Michael Arrington for starting a venture capital company partially funded by Armstrong—a breach of traditional journalistic ethics but not one that bothered Armstrong—the CEO yielded to her demand. (The sharp-tongued Arrington loves Armstrong but remains angry at Huffington: “I wouldn’t piss on her if she was on fire.”)

Yet behind the scenes, there are reports of tension between Armstrong and Huffington. According to multiple sources Armstrong has been looking for ways to bring the independent Huffington under his authority and has been speaking privately to various news executives—among them former Wall Street Journal and Portfolio magazine editor Joanne Lipman—about how to create order and cost-effectiveness in an occasionally chaotic content menu. Huffington, for her part, is said to be increasingly unhappy at Aol., and, sources say, periodically has entertained offers to move her web operation to another parent company, a scenario that wouldn’t be feasible without Armstrong’s consent. He and Huffington stoutly deny any trouble, though they confirm that HuffPo has attracted robust outside interest.

“The Huffington Post is not for sale,” Armstrong insists, adding that the $315 million sales price—$65 million more than Amazon mogul Jeff Bezos paid for The Washington Post—is a steal. Comparing his purchase of HuffPo to Yahoo chief executive Marissa Mayer’s recent $1.1 billion acquisition of Tumblr, Armstrong says, “I think it’s worth more than Tumblr. Don’t you?” and laughs.

He has command presence, an attribute he’s displayed at least since he was a prep-school freshman at Lawrence Academy in Groton, Mass., and, in an anecdote he tells Aol.-ers to illustrate the importance of individual initiative, he helped extricate his fellow teenagers on an Outward Bound trip from a perilous blizzard in Maine. He communicates with infectious enthusiasm. But as the leader of a company that is straining to reinvent itself, he is seen by some underlings as a relentless micro-manager who makes demands that seem impossible, impulsive, and occasionally contradictory. Armstrong rejects that characterization, saying he lets the brands he considers successful, such as TechCrunch and Huffington Post, operate without interference and only gets down in the weeds when he believes things aren’t going well.

“I have to do what I think is right,” he says. “I don’t think anybody at the company would say that I’m not super-direct. Maybe you’ll find 100 people to say that, but they probably don’t work at Aol. anymore.”

And yet, late last year, Armstrong decided to present a three-week campaign of 30- and 60-second television commercials to reposition Aol. as a hot, sexy brand. It was an all-hands operation, telescoping what would normally be a nine-month process into five short weeks. Rushing headlong toward a late-November deadline, one Madison Avenue agency was fired, a new one was hired, creative ideas were pitched during the height of Hurricane Sandy, and an estimated $7 million of television inventory was purchased at a last-minute premium. A publicity juggernaut also was planned, with Armstrong aiming to appear on Good Morning America.

But according to a witness, the CEO continually inserted himself into the smallest details of production, at one point demanding that staffers archive every photograph of former chief executive Steve Case ever posted on AOL’s homepage and at another point ordering that they find and contact every married couple who had ever met in an AOL chat room.

Finally, after the commercials had been produced on deadline at an estimated cost of $2 million, Armstrong, without consulting his main creative team, decided to purchase clearances for various hip-hop tunes, printed up fliers for dance auditions, and spent an additional $1 million on a production number, featuring a dancer costumed as an old-timey AOL “Running Man” logo, that was to fill the last five seconds of each ad. A rough video of the dance routine, featuring Aol. employees gyrating around the Running Man to rapper Rob Base’s hit It Takes Two, made the rounds through the company to a fair amount of eye-rolling. Total cost: $10 million. The commercials never aired.

“At the end of the day, I didn’t feel like it was going to be value-enhancing in terms of the quality we were able to get, and I decided to pull it,” Armstrong says. “That was probably a bridge too far.”

A former Aol. employee describes a psychic schism between the “Good Tim” and the “Bad Tim.” “When you get the good Tim, there’s nothing like it. When you get the bad Tim, oh my goodness,” says the ex-Aol.-er, who spoke on the condition of anonymity. “When you first talk to him, you think, ‘Wow, this guy is amazing. He’s a visionary. He’s so smart. He’s cool. He’s charitable. He doesn’t have any airs.’ I thought he was a really great guy that was misunderstood. And he does have a tremendous capacity for work. And then you get close and you realize he has to do everything himself—look at every contract, write every email, and at some stage, he goes completely nuts on you.”

The “Bad Tim” made a rare public appearance in early August during a conference call with 1,000 employees of Patch, 500 of whom were being laid off, while hundreds of Patch sites were being shuttered around the country as Armstrong’s hyper-local dream project crashed into fiscal reality. He was, understandably, in a sour mood as Patch creative director Abel Lenz began taking photos of him. “Abel, put that camera down right now!” Armstrong snapped. “Abel, you’re fired. Out!”

Audio of the moment immediately went viral, and coverage of Armstrong’s meltdown not only made him an instant worldwide celebrity but also treated the incident with a gravity previously reserved for President Truman’s sacking General Douglas McArthur. For Armstrong, who apologized for his lapse in a company-wide email (“at a human level, it was unfair to Abel,” he wrote, though Lenz stayed fired), it was a searing embarrassment, especially because he was accustomed, until then, to favorable press.

“When 500 jobs are on the line, I don’t know many other situations as serious as that,” Armstrong reflects. “I grew up in a situation where that happened in my household. I know what that situation feels like. My dad”—who had worked for IBM and other companies in the digital equipment business—“was laid off during my freshman year in college.”

Through it all, Wall Street, which had left Aol. for dead, has greeted Armstrong’s leadership with measured applause. The stock price, which began in the low $20s at the moment of the December 2009 spinoff and dipped to $11 in the months after the Huffington Post purchase, is currently chugging along in the mid-$40s. Armstrong was compensated more than $12 million last year in cash and stock, but he’s made tens of millions more as Aol.’s largest individual shareholder, with 6 percent—or $211 million—of a company with a market cap of $3.5 billion.

During his most recent earnings call with Wall Street analysts in November, Armstrong could tout a record of consistently beating the street’s expectations. “Congratulations on a great quarter!” Bank of America’s Joyce Tran told him chirpily.

Among Armstrong’s fans is investment analyst Clinton Yara of the San Francisco-based RS Investments, who supervises a fund that owns around 7 percent of Aol.

“We’re always looking for out-of-favor and misunderstood ideas, and Aol. was one of them,” Yara says, adding that he tracked the stock and the company for nearly two years after the spinoff before finally taking the plunge and then accumulated Aol. at an average of $14 per share. “Tim never wavered from his strategy of getting the premium ad dollars, and we thought that was impressive. We liked his vision, and his ability to stick with his vision, and we found the right entry point in the middle of 2011, when it kind of flat-lined a bit before it fell off a cliff. It was a no-brainer to buy from a risk-reward, downside-upside perspective.”

The market’s provisional endorsement is a testament to the user-friendliness of Armstrong’s strategic roadmap, the reinvention of Aol. from its legacy identity as a subscription and dialup business—still Aol.’s largest, albeit withering, profit source—to an advertising- and content-driven media and technology company. But Wall Street’s approval is also a tribute to Armstrong’s gifts as a salesman, honed when he was a freshly minted Connecticut College graduate and varsity lacrosse captain, sharing a ratty apartment in Boston’s Charlestown neighborhood with his old teammate Luke Beatty.

“It was the most amazing fucking thing I’ve ever seen in my life,” recalls Beatty, who watched his roomie launch a local tabloid called BIB—for Beginnings in Boston. “Tim had this plan that he was going to start this new magazine-slash-newspaper. And he would get up every single morning, put on the same gray suit, literally in the hottest, shittiest weather. He didn’t have car, he didn’t have a bike. And he would go out in this suit like a door-to-door salesman, and basically walked around Boston. He had a map, and he would just go from business to business to business and sell ad space in a magazine that didn’t exist.”

Beatty, who in 2010 sold his crowd-sourcing publishing platform Associated Content to Yahoo for $90 million (Armstrong was his first investor) and recently joined Aol. as head of strategic partnerships, recalls accompanying his roommate on sales calls.

“He’d walk in and he’d open up his rate book, and show them the different ad units they could buy, and they’d say, ‘Where’s the magazine?’ And he’d say, ‘We haven’t published the first edition yet.’ And they’d say, ‘Well, how can you be selling ads in it?’…do that.’ It was sort of like, ‘I’ve got this farmland in Florida for you.’”

“That says it all,” laughs Silicon Valley journalist Sarah Lacy, who left TechCrunch after Armstrong bought it to start her own digital business blog, Pandodaily.com. She talks about Aol.’s leader with genuine respect, saying Armstrong deserves credit for recruiting significant players such as Lord and Lyne into the Aol. orbit. But she wonders aloud if in the end, even if Armstrong puts Aol. on a sound business footing, he can restore the company to its long-ago status as influential social phenomenon. “Aol. is not considered a cool brand in Silicon Valley, where surging companies like Twitter, Facebook, Pinterest, and Snapchat are.” She adds, “If his goal was to crank out mass page views and put ads against them, I think he’s done a great job at that.”