Internet

AOL: We've Got Garlinghouse


Former Yahoo! executive Brad Garlinghouse earned notoriety in 2006 when he sent a scathing memo to the company's top brass. In what came to be known as the "Peanut Butter Manifesto," Garlinghouse said Yahoo (YHOO) had spread itself too thinly across many businesses. Now Garlinghouse is headed to another company that needs to improve its focus.

On Sept. 8, AOL said Garlinghouse would head its Internet and mobile communications division, which includes e-mail and instant messaging products. The hire comes as AOL prepares to be spun out from its corporate parent Time Warner (TWX) later this year—and as freshly minted Chief Executive Tim Armstrong leads an effort to trim costs and home in on what AOL does best, including display advertising. Garlinghouse, who most recently served as an adviser to venture capital firm Silver Lake Partners, will likely play a key role in helping Armstrong forge alliances and make acquisitions, while deemphasizing or even spinning off noncore businesses.

In some ways, the biggest challenges facing Garlinghouse at AOL are of his own making. At Yahoo, he led the effort that put Yahoo Mail and Yahoo Messenger ahead of AOL Mail and AOL Instant Messenger in terms of U.S. visitors. In July, Yahoo's e-mail service had more than 106 million unique visitors, almost three times the tally for AOL, according to comScore (SCOR). Now he's determined to revive the flagging properties at AOL. "I'm a very competitive person," Garlinghouse tells BusinessWeek. "I'm here to win and if I didn't think there was a chance [of beating Yahoo in e-mail and IM], I would not have joined."

AOL: "More of a Foot in the Past" One of his main approaches will be collaborating with—and potentially acquiring—other players in Internet communication. "You are seeing the Twitters of the world and the Facebook updates of the world changing the dynamics of online communication," Garlinghouse says. "I definitely come to the table thinking about, 'How do we collaborate in this ecosystem?'" In recent weeks, AOL Instant Messenger began letting users update their Facebook and Twitter pages directly from its desktop client.

On his first day at the new job, Garlinghouse wouldn't rule out acquisitions, though he said he's not planning a shopping spree. "If there are attractive opportunities, we'll look at those," he says. It's about time AOL looks for ways to update its communication tools, says Colin Sebastian, an analyst at Lazard Capital Markets. "The way people communicate changes very quickly—Twitter and Facebook are clear examples of that in recent history," Sebastian says. "AOL seems to still have more of a foot in the past than in the future."

Garlinghouse has experience bringing outside services into the fold. In 2004 he led Yahoo's $30 million acquisition of e-mail service Oddpost. "That was something that jump-started Yahoo's growth in e-mail," Garlinghouse says. He was also involved in the company's 2007 acquisition of Zimbra.

Responsibilities at AOL Ventures, Too The former Yahoo exec also gained props for helping the company pick winners from among existing businesses. In 2007, Garlinghouse helped convince Yahoo to give up its photo service and instead focus on Flickr, says former Yahoo executive Jeff Bonforte. "It was like him living the 'Peanut Butter Manifesto,'" Bonforte says. Flickr is one of the most widely used photo-sharing services.

Similarly at AOL, enhancing focus on some products may come at the expense of other units. "There are areas where we will need to invest further, there are areas we will certainly need to reevaluate," Garlinghouse says. Look for some of the biggest changes at AOL Ventures, the unit the company created for businesses that seek venture investment, and which now owns social networking site Bebo and video search engine Truveo. Garlinghouse's responsibilities will include acting as the West Coast head of AOL Ventures. While he admits some of these businesses may be sold or spun off, he says the unit will allow many of them "comfortable ways to grow in some ways distinct from the mother ship, AOL." He didn't say which companies may be restructured.

Garlinghouse is the latest in a series of outside hires for CEO Armstrong, who himself came from Google (GOOG) in March. Last month, Armstrong named fellow Google alum Jeff Levick as AOL's new head of sales, Patch Media's Jon Brod as head of AOL Ventures, and Time Warner Cable (TWC) executive Artie Minson as his new chief financial officer.
MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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