New AOL Chief Is a Google Veteran

Hiring Tim Armstrong as CEO sends the strongest signal yet that Time Warner has big plans for its Internet business, starting with a potential spin-off

By Tom Lowry

Tim Armstrong, new CEO at AOL

Tim Armstrong, one of Google's top advertising executives, was tapped to run AOL in the latest high-level shakeup at Time Warner's famously troubled Internet unit. The division's current CEO Randy Falco and President Ron Grant, who ran AOL in tandem for the last two and a half years, will leave the company, Time Warner said Mar. 12.

The hiring of Armstrong, the search giant's main conduit to Madison Avenue, comes as Time Warner (TWX) CEO Jeffrey L. Bewkes weighs spinning off AOL, which would end one of the worst corporate marriages ever.

Those who know him say Armstrong, 37, is one of the more personable executives at Google, possessing a self-effacing style and the skills to be able to sell a potentially independent AOL to Wall Street. In a prepared statement, Bewkes said, "Tim is the right executive to move AOL into the next phases of its evolution."

Armstrong brings an expertise in Web search, an area of online advertising dominated by Google (GOOG), that's likely to complement AOL's strengths in display advertising, where Google hasn't exactly blazed trails. "He's one of the real innovators of the industry, and I'm certain AOL has some great stuff in store for it under his leadership well beyond just his impact on advertising," says Robert Pittman, a former top executive at AOL and AOL Time Warner who now runs his own investment firm, Pilot Group. "This is a real coup for Jeff (Bewkes) to get him—it's going to be fascinating to watch what Tim does using the AOL assets."

Armstrong: More Can Be Done with AOL Brand

In its heyday, America Online served as a principal gateway to the Web, providing Internet access via dial-up connections, a portal to a vast array of Web sites, and e-mail and instant messaging services for millions of Net surfers. AOL's fortunes have diminished in recent years as rival service providers offered faster connections and better customer service, and as competitors such as Google mastered online advertising and search and Yahoo's portal and e-mail drew larger audiences. Still, AOL's instant messaging service is widely used and millions cling to its portal and e-mail. AOL could do more to harness its "strong global brand," particularly when it comes to advertising, Armstrong says in an interview. "AOL is one of the top five companies on the Internet, but more can be done with the brand."

Armstrong will need to move swiftly to reinvigorate AOL's reputation, analysts say. This "management change is a significant positive for Time Warner shares, as it will mitigate fears, at least near-term, about the company's most worrisome asset," Pali Capital analyst Rich Greenfield wrote in his blog. "While it is impossible to know whether AOL can be fixed, hopefully Armstrong's first decision will be to change the name. AOL is simply toxic."

Equally as challenging will be any attempt to spin off AOL in the current economic climate. "I can't imagine Bewkes could get this done anytime soon," says one longtime Time Warner shareholder. Then again, Time Warner is sticking to plans to spin off its cable business at the end of March. It's likely that Time Warner would not include AOL's moribund dial-up access business in any spin-off, either continuing to milk it for cash or attempting to find a buyer. Asked about the potential for a spin-off, Armstrong appeared not to be put off by the economy. "There is a lot of optionality around this company," he says. "You have to focus on shareholder value. To do that, you have to show that you have a strong core business."