AOL Reorganizes Into Membership, Brand And Ad Units [Incl Armstrong's Memo]

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After yesterday’s $400 million share buyback, some more news today from our owners, AOL: it’s reorganizing into three operating units, plus a separate one for corporate support of all three:  they will be called AOL Membership, Brand Group (which includes content like TechCrunch and Huffington Post), and the Advertising.com Group.

Tim Armstrong, the CEO, has also appointed Artie Minson to the role of Chief Operating Officer overseeing the three operating units. Before this, he had been the CFO, a position where he already had some control over operations, for example leading its legacy dial-up business.

This will be seen as a reward for Minson, who has been picking up increasing operations under his control in the last several months (they included the company’s mobile, search and content businesses as well), and under Minson, “our trends in these areas of our business have significantly improved,” writes Armstrong. The COO appointment is effective immediately, but Minson will continue on as CFO too until a replacement is found; the company is actively recruiting now.

Today’s is the latest shuffle at AOL, which last reorganized in December into a dial-up/online services division; a local business; media; and advertising divisions.

In some ways, today’s pared-down reorganization may speak to attempts at a more simplified approach to the business as well:

AOL Membership is all about loyal AOL users, whether paying or free. It makes sense for them to live together, as AOL thinks of more ways of upselling its most loyal users to spend a bit more time and money with them.

Content and brands, meanwhile, looks like it will be giving a bit more autonomy to individual sites to sort out their profitability as they see fit. Again, this makes great sense because no one wants to be part of a cookie-cutter, assembly line, and I suspect fewer would want to engage with such content, as well.

Advertising.com, will be an interesting one to watch. This is the space where AOL is pinning a lot of hope for revenue growth — online ads not just on its own properties but throughout the web — but it’s also hugely challenged with players like Google and Facebook commanding huge leads on overall online ad revenue share. There is a possible future in technology development and getting an edge on other companies that way.

As you can see in the memo below, Patch and other previously-categorized local businesses like MapQuest, and initiatives like mobile content, are not specifically mentioned in the new plan. We’ve written back to Tim Armstrong to ask about this, and whether there are any asset sales or closures planned as a result of this most recent reorg.

Ultimately, AOL is trying to balance Armstrong’s long-term fightback strategy, based around a strong content business and sophisticated display advertising around that, with activist shareholders who want to see more decisive and short-term actions to turn the company’s business around.

Originally AOL thrived in the early days of the internet with a robust dial-up business. More recently, and post a merger and subsequent spinoff from Time Warner, it has pivoted into a more challenged content business based around online advertising as a revenue generator (with significant dial-up revenue, remarkably, still thrown in).

Armstrong had a vote of confidence earlier this month, when shareholders elected to keep the current board. Starboard Value, the most outspoken shareholder critics of AOL’s strategy, had wanted to replace three people.

“We all agree that AOL is undervalued. We also all agree that AOL can achieve substantial revenue growth and far more profitability. The challenge is how to get that accomplished,” Starboard’s CEO Jeffrey Smith said in remarks at the shareholder meeting — echoing the basic complaints Starboard has had for months now. Some of their suggestions for how to achieve that — like selling patents — have been implemented; others — like selling off the costly content business — have not. Yet. Starboard is the fifth-largest shareholder in AOL and has a 5.3% stake in the company.

The full memo from CEO Tim Armstrong is below.

AOLers –

As we approach the halfway point for 2012, we are well positioned to reach a huge milestone in the turnaround of our company – returning to growth in 2013. AOL has faced and met a gauntlet of challenges and we will continue to take aggressive operational steps forward during the second half of 2012 against our strategy.

As we have discussed over the last several months, we are building AOL into “The Brand Company”. We will continue to unleash the power and talent within each of our brands to pursue the global consumer and business disruption by digital services. Brands are at the center of our company and we are structuring our talent and organization around our brands. Our brand strategy not only touches the brands we own, it extends to helping the world’s best content and advertising brands by sharing our technology and monetization with them.

During the many meetings we had last week in Cannes, France for the advertising festival, it was a powerful reminder that our brands have deep opportunities in all major categories of consumer and commercial usage. While AOL is a global brand, we now have the opportunity to build other global brands and to go deeper into our strategy of serving influential audiences. A highlight at Cannes was the reaction to Huff Post Live (that Arianna and Roy shared on stage at Cannes), some of the innovative follow-up from AOL Autos, TechCrunch and Engadget’s growing global footprint, the progress of the Ad.com platform, and the partner interest in Patch.

To kick-off the second half of 2012, today, the company is announcing the plan to organize into three operating groups and a corporate group that supports those three operating units. The operating units will be AOL Membership, Brand Group, and the Advertising.com Group. The goals of organizing around these operating units are the following:

1. Build and distribute the world’s best digital brands (B2C and B2B)

2. Center our measurement, resource allocation, and drive to profitability around brands

3. Focus our technology and product development on building brand platforms

4. Improve our O&O and network advertising and commerce revenue

5. Go faster, unleash talent, and have fun

Supporting the three operating units of our business will be a shared technology and sales platform, as well as AOL corporate functions. As a company and a culture, brands (including the AOL brand) will be the central focus and measurement point for us and we will continue to move the supporting resources closer to the brands. We want our brands to be driven by leaders who will achieve an even greater focus on our consumer experiences while also driving increased accountability, financial performance, and execution.

Here is a deeper look at the operating units:

  • The AOL Membership Group will house the businesses that serve AOL account holders – our free and paid members. From AOL.com to AOL Mail to our consumer products that our users rely on, the AOL Membership group will be focused on delivering world-class experiences to our loyal users who rely on these AOL products and properties everyday.
  • The Content Brand Group will house our portfolio of distinct and unique content and service brands. We have a valuable portfolio of world-class content brands, and we want each of these brands to have distinct plans for innovation and profitable growth. Our brand portfolio delivers unique content experiences to their audiences daily, and the leaders in this operating unit will be laser-focused on driving profitable brands that serve real consumer needs.
  • The Advertising.com Group will house our B2B services and network businesses (the platforms we provide to our partners). The Advertising.com Group had our strongest revenue growth for the past couple of quarters and the product innovation and scale we are driving for our partners both on the publisher and advertiser side demonstrate that the Advertising.com Group is positioned for continued growth and acceleration of their business.

As part of our organizational structure around brands, we are announcing today that Artie Minson will be promoted to take on the role of Chief Operating Officer, a critical new leadership position at our company. In this role, Artie will oversee our three operating units and coordinate a cohesive operating model to deliver strong P&L performance across all three operating groups.

Artie’s new role as COO is designed to push continued improvements in the operation and performance of our brands. Artie is a world-class leader and proven operator who has played a key partnership role with me over the last three years at AOL. Artie has garnered an impressive list of financial and operating accomplishments. He has significantly improved our balance sheet, cost structure and tax profile, helped unlock significant value for shareholders via asset sales at great prices. Artie has also led a number of acquisitions which have been and will continue to be drivers of future growth. He has played and will continue to play a critical role in our capital allocation process as we continue to ensure that our resources are being allocated to the areas where we see the greatest opportunities for returns for our consumers and customers. In addition to his CFO responsibilities, Artie has also taken on a significant operating role in the company as he has been overseeing our subscription, search, mail, mobile and, most recently, AOL content operations and our trends in these areas of our business have significantly improved during this time period. As we move to a segmented approach to operating the business, Artie has already been working with the senior leadership on plans to further optimize our operations.

Artie will become COO effective immediately and will continue as CFO while we progress with an external search for a new CFO, reporting to me. We have engaged one of the top CFO recruiters in the country, Peter Crist, and we have a list of world-class candidates we are interviewing for the position.

We are also promoting Maureen Sullivan to the role of leading a newly created Women’s Content and Lifestyle Brands group within the Content Brands operating unit. This team will develop and launch brands that serve women – one of our most important audiences in our 80/80/80 focus – by delivering captivating experiences across the style, food, shelter, and lifestyle categories. Maureen is already engaged in building out a portfolio of women’s properties, including planning new experiences for Stylelist, Stylelist Home and KitchenDaily, with the goal of attracting new consumers to our brand offerings and enabling custom solutions for our advertisers trying to reach our valuable female audience.

Throughout her career, including her time at Google, Maureen has expertly driven brands forward – including understanding how to help partners drive their brands successfully. In her three years at AOL, Maureen has been the architect of our AOL brand reinvention, and she and her team have been widely recognized for the game-changing work they have done on our AOL brand identity and creative consumer campaigns. Almost a year ago, we asked Maureen to take on an additional responsibility in launching new brands for the company targeted at the women’s space as part of our 80/80/80 strategy. Under that charter, Maureen launched MAKERS.com for AOL during Q1, and now MAKERS is one of our most successful and profitable brands in only its first few months. Creating powerful brands that are successful businesses is something we know Maureen will lead expertly for us in this new role in the very important women’s content space.

We have engaged Spencer Stuart to backfill for Maureen’s current role and she will continue to work on the AOL Brand through Q3 as we launch a continued set of creative work around the comeback of the company and an AOL Brand campaign targeted to consumers.

As part of our effort to align the corporate areas to support our brands, we are also broadening Julie Jacobs’ role. Currently overseeing Legal, Corporate Services, and Mergers & Acquisitions, Julie’s remit will now grow to include Business Development. Drawing on her strong commercial acumen, expert partnership skills, her extensive deal experience, and some 10 years immersed in the AOL business, Julie was the primary architect of the patent transaction with Microsoft, generating more than $1 billion in value for the company. Julie’s incredible track record of leadership and execution will prove incredibly valuable in this expansion of her responsibilities. Julie will be building a full business process around our current and future investments and partnerships that will span both Business Development and M&A.

The company is already operating within “The Brand Company” structure. All AOL brands will be presenting their Q3/Q4 strategy and product roadmaps on July 2nd and we will publish the Q3/Q4 commitments next week. Earlier this week we reviewed all of the engineering allocations across the company and I will be working directly with Curtis Brown to optimize any allocation areas in technology to match the business strategy and resource needs. The sales team has had major improvements in the core operations and data process during Q2 around our brands and we will continue deep improvements to sales during Q3. Technology and sales will continue to report to me and we will continue to improve the leverage of these teams across the company.

Our brands provide the news, information, and services that improve peoples’ lives. Our brands are also are the source of sustainable long-term growth for our consumers, customers, employees, and investors. We are organized and ready for the 2nd half of 2012 and we will continue pressing forward aggressively to accelerate our growth across our businesses. Looking forward to seeing you all live shortly during our Global Company Meeting at 12pm ET today.

Go AOL! – TA