Can AOL Re-emerge in Google’s Image?

It may be an understatement to call AOL a tarnished brand – few companies have fallen further or crashed harder in so short a period of time. In the first generation of web development, AOL was a mail order ISP that gave millions of Americans their first dial-up account, and the company rose to essentially take over the media giant Time Warner in a merger that gave AOL a 55% stake in a combined company, with AOL’s market cap at over $220 billion USD. Now, Time Warner has received permission to “spin-off” AOL… and its estimated value is $2.4 billion USD, 8 years later.

“Time Warner Inc said on Thursday its bondholders had agreed to change the terms of their debt contracts, removing restrictions on a sale or spin-off of its beleaguered Internet unit AOL.”

“The media giant asked bondholders earlier this month to change terms on around $12.3 billion in outstanding debt, paving the way for a potential separation of the Internet unit. In exchange for the new agreement Time Warner will pay the bondholders around a total of $61.5 million.”

“Time Warner Chief Executive Jeff Bewkes has said he is examining options for the future structure of AOL. Last month he lured former Google Inc executive Tim Armstrong to head AOL with the possibility of leading a spin-off.”

eBay recently announced plans to spin-off Skype in 2010 with an IPO, it is unclear at this point whether Time Warner will do similar with AOL. The fact that they recently split their cable holdings from media divisions, and that Time Warner CEO favors the idea suggests the announcement will come in the next couple of months. But is AOL even relevant enough anymore to stand alone as a company after an IPO?

“Time Warner’s chairman and CEO Jeff Bewkes announced that the former Senior Vice President of Google would take the helm. AOL is owned by Time Warner, the parent company of CNNMoney.com.”

” ‘At Google, Armstrong helped build one of the most successful media teams in the history of the Internet – helping to make Google the most popular online search advertising platform in the world for direct and brand marketers,’ said Bewkes in a written statement. ‘He’s an advertising pioneer with a stellar reputation and proven track record.’ ”

“Armstrong worked at Google since 2000, and he opened the first Google branch outside of the Mountain View, Calif. headquarters. Armstrong was the president of Americas Operations and a member of Google’s Operating Committee.”

“One media analyst was very encouraged by the new CEO. ‘We are very surprised that they were able to attract someone of his pedigree,’ said Richard Greenfield, media analyst at Pali Research.”

“ ‘I think investors will be very excited by his potential to reinvigorate AOL,’ said Greenfield.”

I recently (last year) visited the Propeller web site that is related to AOL, otherwise I have never used their services. The company has never had a good reputation among web designers as an ISP, and as a media company it has never really harnessed the integration promised by the partnership with Time Warner. Google apparently invested in a 5% stake in AOL around 2005 valued at $1 billion – the investment is worth less than a quarter of its value today… neverland.

Will Time Warner sell AOL outright to Google? It is hard to see too many other companies willing and able to make the deal at this point. Even with all of its success, Google still lacks a “portal” style site like Yahoo or a gated community like AOL, but it integrates in a new way that surpasses the portal model in scale. Can AOL reinvent itself in the cloud, for example by providing libraries of apps, storage, integrated file management, etc. for cheap netbooks or scaled down desktops that use web servers for processing? Microsoft could conceivably benefit by mass-integration of its media platforms with AOL and using it as a content distribution channel like YouTube for network media.

AOL as an independent, publicly listed & traded company with majority ownership by Time Warner? The announcement could give AOL a bit of energy, followed by a steady stream of new products, innovations, and services from Google’s Armstrong… but is this enough to bring the company back? Based on Armstrong’s background, advertising would be expected to be the growth source for AOL’s income in addition to ISP services, but is unclear what he will do to build the traffic necessary to lead the company to a re-emergence. Nevertheless, these developments and the experience Armstrong brings to the board are significant, and it looks like things are just getting re-started there.

Background: http://en.wikipedia.org/wiki/Tim_Armstrong_(executive)