Head of AOL parent open to merging online firm with another company
March 15th, 2008AOL, the company that introduced millions of people to the Internet, has tried to reinvent itself many times. The latest effort - like those before it - does not seem to be going very well.
On Tuesday, Jeffrey Bewkes, the chief executive of Time Warner, AOLs parent company, acknowledged weakness in the business and said he was open to combining AOL with another company - “whatever configuration makes it the strongest and the most valuable.”
But he may have been soft-pedaling what seems to be an increasingly troublesome situation at AOL, which has bet its future on a new strategy of selling advertising across the Internet and spent more than $1 billion on related acquisitions.
On Monday, the third of four top executives put in place last summer to run the new advertising division, known as Platform-A, left the company. That executive, Curtis Viebranz, was fired and replaced by the executive who had been battling his strategy all fall, Lynda Clarizio.
Several recently departed executives contacted this week described the climate at AOL as acrimonious. They said there had been confrontational employee meetings and screaming matches in private offices as senior executives worried about making their aggressive quarterly ad sales goals. Bewkes acknowledged Tuesday that revenue at AOL would be flat for at least another quarter.
AOL still enjoys many advantages that most companies can only dream about, from a prestigious brand name to an enormous revenue stream ($5.2 billion in 2007, down 33 percent from 2006). AOLs Web sites attract 112 million visitors a month, and 9.3 million Americans still pay the company for Internet services. But these days, no Internet portal can succeed without a thriving advertising business, and that is where AOL is trying to shore itself up.
While the problems may amount to little more than growing pains at a business that is trying to compete with the likes of Google, Yahoo and Microsoft, they do suggest the obstacles that AOL faces as it tries to pull off its latest strategy, which was announced with great fanfare last August.
The goal is to expand AOLs advertising networks, which sell ads on thousands of Web sites, by knitting together the seven advertising and technology companies that AOL has purchased and rolled into Platform-A. Until recently these fiefdoms have continued to operate separately - in some cases, fiercely so.
“We were ahead of the curve in the creation of Platform-A and remain in a great position to compete in this intensely competitive marketplace,” said Randy Falco, the chairman and chief executive of AOL. “Our No. 1 priority is consolidating and integrating Platform-A to make it easier for marketers to harness the full power of digital media to solve their marketing problems.”
On Tuesday, Bewkes, who spoke to analysts at a conference in Palm Beach, Florida, confirmed that AOL no longer saw a meaningful future for its dial-up Internet subscription service, which may be spun off.
He expressed tepid optimism for the AOL Web portal, which has lost ground to Microsoft, Yahoo and Google, and indicated that the company meant to keep AOL.com and Platform-A together, saying that they complemented each other.
AOL remains the single biggest issue that Bewkes must handle. On the one hand, Time Warner needs a strong Internet operation to hedge against the declines in its traditional business. On the other hand, AOL has been troubled for years and may not have the scale or capabilities to survive on its own. Time Warner explored merging AOL with Microsofts online operation two years ago and is now discussing a potential deal with Yahoo.
If there is one thing that AOL executives do agree on, it is that the future of their business lies in advertising revenue.
AOLs overall revenues have declined as it has lost dial-up access subscribers. Its advertising revenues were $2.2 billion in 2007, up 18 percent over the previous year, but the pace of ad revenue growth has slowed each quarter, even as AOL bought companies like the ad network Tacoda.
AOL will not meet its goal for the first quarter of this year, according to several senior executives there. And advertisers say the company has fallen into a pattern of making frantic phone calls at the end of each quarter to offer last-minute price cuts on its ads, if only the client will buy more.

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