AOL’s Ad Challenge, Explained

How can AOL CEO Tim Armstrong fix his company? He has a very big To Do list, of course–like hacking away at his cost base, through buyouts, layoffs and asset sales. And then there’s the whole automated content plan, whatever that actually is.

But here’s one very important priority: Reversing the direction of this chart. Via JP Morgan’s Imran Khan, it tracks the amount of money the company has been able to generate from every 1,000 page views:

As Khan notes, you can pin a lot of AOL’s (AOL) ad slump on the previous regime’s decision to sell much of the company’s inventory through its “Platform A” ad network, which stressed volume over price. That is, the AOL sales team was rewarded for selling as much as it could, no matter how much money it got for the stuff.

Armstrong’s solution sounds simple, and it’s one that other big Web players, like CBS (CBS) and Yahoo (YHOO) are trying to do as well: Sell less stuff, at higher prices. It won’t be that easy, of course.

Armstrong’s task may be even harder than that of his peers because AOL’s salesforce, once one of the top shops on the Web, has been in free fall for several years. It’s not a coincidence that Armstrong is a career sales guy, but the sotto voce criticism of his tenure at Google (GOOG) is that he never really needed to sell anything because Google’s ad product sells itself.

That’s a gross simplification, without question. But the best way for Armstrong to prove his critics wrong is to turn that chart around.