Can a streamlined AOL bounce back?

AOL, which this week celebrates its 25th birthday, has had a rough ride over the last year, following a global restructure and redundancy programme. So can the streamlined business regain lost ground?

Tim Armstrong, AOL's chairman and chief executive, addresses shareholders
Tim Armstrong, AOL's chairman and chief executive, addresses shareholders

No-one can say AOL's global chairman and chief executive Tim Armstrong won't put his money where his mouth is.

In the week AOL posted its Q1 results and sold its ICQ instant messaging system to Digital Sky Technologies for $187.5m, Armstrong bought a cool $11m of shares in the internet giant, nailing his colours to the mast in an unambiguous statement of confidence.

AOL's revenue may have dropped 23% year on year to $664.3m, but Armstrong's resolve is unshaken. He told shareholders: "I believe in the AOL brand, our strategy and, most importantly, our team and that is why I am investing. Opportunities are opportunities because others don't see them; AOL is an opportunity, and we are just getting started."

Not many digital companies say they are "getting started" a quarter of a century after their launch but AOL, which marked its twenty-fifth birthday this week, is giving it its best shot. As the cakes it handed out to London media agencies reminded: "This year is more than a birthday; it is a rebirthday."

AOL's rebirth over the last year has been painful and public. Following the annulment of its marriage with Time Warner last May, AOL is refocusing as an independent, publicly traded company, stripping away inefficiencies to create "a structure with longevity" for the company that once lorded it over Google.

Armstrong's Everest efficiency review resulted in the closure of nine of the 11 European offices, a redundancy programme that reduced global headcount by one third to 4,500, and the departure of senior UK executives including managing director Michael Steckler and advertising sales director Sarah Perry. As one source at a rival firm said: "The market is flooded with AOL people."

Meanwhile, the elephant in the room is Bebo, the fading social network that AOL bought for $850m in 2008 - the tail-end of an estimated $3bn, four-year spending spree that saw AOL snap up "wild buys" such as Truveo, Lightningcast and Weblogs. At the time of writing, it was still unclear whether Bebo will be sold or "sunsetted", but an announcement is expected within days.

So where does AOL - the company that introduced the iconic catchphrase "You've got mail" and still has 250 million global monthly uniques - go from here?

Streamlined content business

Kate Burns, AOL's newly promoted head of UK and Europe, admits the company's troubles have been a "knock", but is confident she can address media agencies' concerns and, more importantly, deliver against objectives.

She says: "The perception is that AOL is under change; the reality is we have just restructured the business, we are still selling the same and we are improving our content. So if anything our offering should be more exciting."

Working with Armstrong, Burns has streamlined AOL around the three pillars of advertising, communications and content. Anything that doesn't fit with this new focus has been closed down or sold - such as affiliate business, bought by Digital Window for $16m in January - and the number of UK sites has been pared down to 25, led by men's lifestyle blog Asylum and celebrity site Eleven.

Since last September, the complex Platform-A has been rebranded as AOL Advertising, managed by Andrew Moore, Toby Morris and Rob Blake, giving agencies a simpler point of contact for advertising sales.

But the key to AOL's turnaround plans is its content strategy, which is moving away from its previous "buckshot, scattergun" approach that appealed to niche audiences to a "laser focused" strategy targeting three strong demographics: affluent males, working mums and silver surfers.

"We all know content is expensive, and in some areas it is highly competitive and crowded," Burns says. "The sites that don't fall into these groups will be sunsetted, and those remaining will be rolled up into our three audiences, making us extremely focused and well-positioned to succeed in content." She adds: "No other large digital player is doing content well."

AOL's editorial, commercial and creative teams will also be restructured around these three audience groups, and Burns says the response from agencies has been encouraging. "Our clients and agencies love this approach. They would rather have passionate experts selling to their clients than generalists."

Moving into new markets

The next step is transporting some of the successful products from the US to the UK, such as Seed and Patch, both due to launch "imminently". Seed targets users with relevant content from third-parties such as journalists and bloggers, while Patch is a user-generated service for local communities of about 40,000 people. Burns says: "We believe there is a huge opportunity in the UK - the beauty is that Patch is highly efficient and very scaleable."

AOL is also moving into video, following its $35m acquisition of video content management system Studio Now in January. Matt Hunt, managing director of Adconion, says this move to supply publishers such as Maxim with video is "a step in the right direction", but warns AOL's reliance on the pull model - consumers seeking out the content - could prove limited.

He says: "Content-led strategies are only effective when you combine content with scaleable distribution. The real question is: how do you make money out of video for an increasingly fragmented audience to cover the high production costs associated with creating quality video entertainment?

"The interesting next-generation content distribution platforms are combining features of sophisticated ad-serving technology with established audiences that present a scaleable syndication solution for content producers."

AOL was responsible for getting the majority of consumers online, and its smarter, more targeted approach will help it regain lost ground.

But the future of internet access will be dominated by mobile apps and social networks such as Facebook, and it will become harder for digital companies with 25 years of desktop-based baggage to compete.

Richard Holway, chairman of analyst TechMarketView, says: "AOL was one of the first businesses to be recognised in our sector, but the world has changed and the major growth and excitement is coming from the mobile internet.

"Unless it completely reinvents itself again, whether AOL still has a USP in those markets is open to question."






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