After his 100-day VisionQuest to figure out what to do at AOL, Tim Armstrong is in a chattier mood.

The former Google (GOOG) advertising exec took over the perpetually troubled Internet icon in the spring and has been on a worldwide tour of its offices, meeting employees and trying to get a lay of the land of where the Time Warner (TWX) unit has been and where it should be going.

So, BoomTown did not waste a New York–where AOL has its HQ, in fact–minute in getting on the horn with Armstrong to finally hear his take.

There’s not a lot of new stuff to reveal, of course, beyond what Armstrong has already said over the last months about AOL’s new direction.

That would be a spinoff in November, a focus on advertising, content, local, communications and starting a venture unit.

Here is the interview, which we did by phone on Friday:

BoomTown: So, what’s your overall assessment of AOL and its prospects after your 100-day look-see?

Armstrong: Well, to start, I feel good about the company and where we are at. What I mean by that is that I feel good about what the company’s opportunities are.

B: What were you most surprised by on the downside and on the upside?

A: I think basically things were about 50 percent more negative and 50 percent more positive than I thought.

On the negative side, it has mostly been a crisis of confidence. I think people at AOL had started to believe the business press that it was just an incremental part of the Internet.

On the plus side, there are very surprising assets, which have been neglected, but are amazing. Such as Winamp, ICQ and the really incredible engineering talent all over the world–in India, Tel Aviv, Dublin.

B: What was the one thing you took away as the most important thing to do first?

A: Well, it is important for everyone to understand that AOL should not be in every business out there. That there are a limited set of things we have to commit to do better than anyone else.

Over the years, for example, there were so many acquisitions. But a lot of them became businesses that we were not fully committed to, and we have to start making clear choices and letting the rest go.

B: Such as?

A: Well, we are going to be focused on scaling content, advertising, email, messaging and local, but making it easier and less complicated.

In the ad business, for example, we have 100 products. I think we can be much more successful with less.

And we have different publishing platforms all over the world, just as the Web has become about having centralized technology. We have been missing the core characteristic of the Internet, which is about one platform.

B: Talk a little about what you are doing in the content space. AOL, via its MediaGlow unit, has been creating a lot of small blogs in a variety of categories, but also has big sites.

A: We are going to do both things. One thing I would say is that we have a content strategy that spans the content we create, the content we are buying and partnering on, and I think we have clear plans in terms of investing in each area.

B: What about communications?

A: I think you are very quickly going to see us cleaning up email products. And in the messaging space, one of the things we will be doing is integrating it more with other AOL properties.

Historically, the management has looked at messaging as how to drive monetization and it has been a bad experience. I think that it more important as a recirculation tool.

B: How realistic were you about AOL when you arrived compared to now?

A: I went into this job with my eyes wide open and I am not saying now that I have answers to every problem.

But I have been trying to do what it takes to solve the big ones, such as recruiting and building a team. I have also spent a lot of time finding talent in the company already here.

And, I have worked with people outside the company. I consider my job being whatever it takes and educate myself.

B: So what’s next, besides the already announced spinoff? Is AOL still an acquisition target?

A: I look at it in two different ways.

We need to stay very laser-focused on strategy and execution, as well as innovation.

And we have to build this company as a powerful independent one.

AOL has been looked at as a target for a long time, where AOL has been the prey. It might also change in that we can be the hunter too.

B: What about the online advertising and search deal with Google?

A: Well, it ends in December of 2010, as everyone knows.

I have to say that the partnership has been extremely successful on many fronts.

They have been our partners for eight years and there has been a lot of momentum.

But we also have to think about how to continue that for the right outcome for what we need in future, because AOL has changed since the partnership started.

Of course, we will look at other partners, but we also really know we have a great relationship that exists with a partner that is also going to be listening to us about what we need.

While there were reports that the Time Warner board was meeting today to approve the spinoff of its AOL online unit, it actually gave the move an “enthusiastic endorsement” last night, according to sources.

Time Warner (TWX) just put out the press release about the move this morning, which has been long expected since former top Google (GOOG) advertising exec Tim Armstrong was named CEO of the long troubled AOL.

“Following the proposed transaction, AOL would be an independent, publicly traded company,” said the release, which gave few details of the shape of the new company.

But, several sources with knowledge of the situation said Armstrong is set to make massive changes to the structure of AOL, sweeping aside its current set-up almost completely.

That includes keeping the access business, which many thought would be sold off, and putting many of the companies it has recently acquired–including its pricey Bebo social networking site–in a separate ventures unit, which will try to attract outside investment.

The strategy will focus AOL on several key areas, including media, “scaled” advertising and communications.

Time Warner owns 95 percent of AOL, and Google holds the remaining five percent, but Time Warner said it would buy back that stake in the third quarter of 2009 as part of the transaction.

“Accordingly, once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL,” said the release. “The proposed transaction will be structured as tax-free to Time Warner stockholders.”

Armstrong is at the midpoint of a 100-day review of AOL, which has seen its profits and revenues drop in recent years.

That has meant a hard look at the structure put in place by his predecessors, former CEO Randy Falco and President Ron Grant.

They had cleaved AOL into three parts: the MediaGlow content studio; People Networks, which includes Bebo, as well as AOL’s communications assets like AIM instant-messengering service; and its Platform-A advertising unit.

Each has had its own president, and has been operated more independently.

That is effectively over, said sources, as had been signaled by the recent departures of People Networks head Joanna Shields and Platform-A head Greg Coleman.

Now Bebo, as well as start-ups AOL has bought recently such as the Userplane social-media apps unit and its Truveo video search service, will be “relocated” into AOL Ventures.

Each will operate on its own, and AOL will try to get venture capitalists to invest in them.

Armstrong has also decided to stress the AOL brand again, after years of creating a variety of new ones, and try to revive its other well-known brands, such as AIM and ICQ.

All the other parts of AOL will be integrated more tightly together, although the MediaGlow content business will get additional investment and still be run by Bill Wilson.

In addition, sources said it was unlikely AOL would make any big acquisitions after it spins out. Instead, it will focus on making key partnerships with a variety of companies.

Here’s the official press release:

Time Warner Inc. Announces Plan to Separate AOL
May 28, 2009

NEW YORK – Time Warner Inc. (NYSE:TWX) today announced that its Board of Directors has authorized management to proceed with plans for the complete legal and structural separation of AOL from Time Warner. Following the proposed transaction, AOL would be an independent, publicly traded company.

Time Warner Chairman and Chief Executive Officer Jeff Bewkes said: “We believe that a separation will be the best outcome for both Time Warner and AOL. The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses. The separation will also provide both companies with greater operational and strategic flexibility. We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company.”

After the proposed separation is complete, AOL will compete as a standalone company–focused on growing its Web brands and services, which currently reach more than 107 million domestic unique visitors a month, as well as its advertising business, which operates the leading online display network that reaches more than 91% of the domestic online audience. AOL will also continue to operate one of the largest Internet access subscription services in the U.S.

AOL Chairman and Chief Executive Officer Tim Armstrong said: “This will be a great opportunity for AOL, our employees and our partners. Becoming a standalone public company positions AOL to strengthen its core businesses, deliver new and innovative products and services, and enhance our strategic options. We play in a very competitive landscape and will be using our new status to retain and attract top talent. Although we have a tremendous amount of work to do, we have a global brand, a committed team of people, and a passion for the future of the Web.”

Today, Time Warner owns 95% of AOL, and Google holds the remaining 5%. As part of a prior arrangement, Time Warner expects to purchase Google’s 5% stake in AOL in the third quarter of 2009. After repurchasing this stake, Time Warner will own 100% of AOL. Accordingly, once the proposed separation is completed, Time Warner shareholders will own all of the outstanding interests in AOL.

The proposed transaction will be structured as tax-free to Time Warner stockholders. The transaction is contingent on the satisfaction of a number of conditions, including completion of the review process by the Securities and Exchange Commission of required filings under applicable securities regulations and the final approval of transaction terms by Time Warner’s Board of Directors. Time Warner aims to complete the proposed transaction around the end of the year.

Why do I care?

• Because his hire is yet another indicator that AOL is continuing to hire experienced writers and reporters–often from ailing publications–to build up its own sites, a strategy championed by content czar Bill Wilson’s MediaGlow. AOL has been steadily hiring journalism vets and using them to reinvigorate existing sites like its FanHouse sports hub and to launch new ones like PoliticsDaily. Other recent hires include Mitch Lipka, a consumer finance writer for the Boston Globe who will join AOL’s Walletpop, and David Wood, a longtime national security writer for the Baltimore Sun,  who is joining PoliticsDaily.
• Because it means that the not-going-to-shut-down-after-all Portoflio.com won’t feature its two marquee bloggers. Felix Salmon, Bercovici’s former colleague at the Condé Nast site, had already left for Reuters to start a finance blog earlier this year.
• Because Bercovici is damned good at the media beat, so I’m going to need to bookmark his page and add his RSS feed into my reader.
• And because I’ve been writing about layoffs since I started this column in October, and this is a nice change of pace.

Last year, Yahoo EVP Hilary Schneider and then-Media Group head Scott Moore had a summery seaside dinner with Demand Media co-founder and CEO Richard Rosenblatt (pictured here) in Santa Monica, Calif., right around the corner from the online publishing company’s HQ.

While many speculated that Yahoo (YHOO) could be doing some friendly kibitzing to get a sense of where the eclectic network of general- and special-interest sites was headed, for a possible acquisition, nothing came of it.

That’s because at the time, Rosenblatt insisted that he was aiming to eventually take his company public and Yahoo was in the midst of ongoing corporate turmoil.

“There is a lot of potential here and I want to build a big company for the long-term,” said Rosenblatt in an interview with BoomTown last July (see video below).

But, as my post noted: “Still, at some point when Yahoo is not in the free fall it is currently in, Demand might make a great purchase for Yahoo.”

And now, a year later, as new Yahoo CEO Carol Bartz works to stop that slide, several sources close to the company tell me another look-see at Demand is likelier than ever.

That’s underscored with recent indications that a major strategy will finally follow through on making Yahoo’s massive but disparate service more social, especially its content offerings.

But would Bartz go as far as making a big buy now or would she be more likely to strike a massive partnership with Demand, from which Yahoo could learn a lot?

Such an acquisition could cost anywhere from $1.5 billion to–as was floated last year in better times–$3 billion. In addition, if Demand was to engage in more serious talks with Yahoo, there would likely be other suitors.

As costly as that is, some sort of link-up with Demand is an interesting idea, especially since Yahoo could use a bold and definitive move to signal social goals that play to its strengths and are not a copycat of more powerful social-networking sites now in place.

At a Morgan Stanley (MS) conference last month, Bartz said, for example, that “I do not believe we can invent the next Facebook,” while noting Yahoo still needed to be more social throughout the service, especially in its content.

And, just yesterday, a Reuters article about that focus was titled: “Yahoo’s Plan: Create Community from Isolated Sites.”

Said the article: “If [Yahoo co-founder David] Filo and new CEO Carol Bartz have their way, the kinds of social networking features available on Facebook will become part of many Yahoo websites and allow their users to network with each other without using Facebook. The company hopes the strategy will help link its disparate properties, bringing more advertising dollars and growth.”

And that’s just at the heart of Demand Media, which dubs itself the “leader in social media.”

Demand was founded in 2006 by Rosenblatt and Shawn Colo, who raised a giant pool of funding–$355 million–from gold-plated investors like Goldman Sachs (GS), Oak Investment Partners and even a private investment from major Yahoo investor Gordon Crawford.

Getting that kind of backing was due to Rosenblatt’s entrepreneurial track record.

As founder, chairman and CEO, he sold iMALL to Excite@Home for $425 million in a 1999 stock swap.

And, perhaps most famously, as CEO of Intermix Media, Rosenblatt sold it with the company’s crown jewel, MySpace, to News Corp. (NWS) for $580 million in cash.

Then, Rosenblatt started Demand, which takes user-generated content of all kinds and on all kinds of topics–especially via video–from an army of freelancers and leverages it into massive traffic that it monetizes.

Demand is also the one of the bigger suppliers of video to YouTube, which it also monetizes.

And, through the acquisition of Pluck, the company also laces social-networking tools throughout the sites, as well as for many well-known third parties.

All this has given Demand upward of 70 million unique visitors per month, at sites like eHow and GolfLink.com, with about $150 million in annual revenue.

And–drum roll please–it is reportedly profitable, although how much is not clear.

While he has long maintained a public offering was on the horizon, despite the weak economy, Rosenblatt has also been interested in the idea of how to revive major players like Yahoo and Time Warner (TWX) online unit AOL.

Both have been struggling, but still have massive traffic and brand recognition, along with large advertising businesses.

And in many ways, the energetic Rosenblatt is just the kind of product-centric and visionary exec Yahoo lacks, despite Bartz’s clear ability to get the company’s management ducks in order.

What could be even more interesting, said one source, would be to marry Yahoo and Demand with a lot of what is going on with the publishing of niche sites at AOL’s MediaGlow content unit, in a giant publishing network.

Ironically, AOL was another acquisition target of Yahoo, in yet another deal that did not pan out last year.

Here’s the interview with Rosenblatt at Demand Media HQ last year:

More moving of the chairs at AOL’s Platform-A.

The Time Warner (TWX) online unit will announce today that Mark Ellis has been promoted to EVP of sales at the advertising division.

He will lead Platform-A’s digital ad sales, sources said, including premium efforts at AOL’s MediaGlow content unit and for its third-party ad network.

It is all part of extensive management reorganization being done by Platform-A President Greg Coleman, former sales head at Yahoo (YHOO).

New CEO and Chairman Tim Armstrong started yesterday and told staff in a memo that even more change was coming, as part of a 100-day effort to evaluate how to revive the online company.

Ellis has been at AOL for a while, most recently as SVP of vertical and product sales. Previously, he worked at sports marketing company IMG, at Quokka Sports, a sports Web site and at Time Inc. as publisher of Time Inc. New Media.

For a tall man, Tim Armstrong has been on an awful lot of online companies’ short lists.

For a big Web exec job, that is. Indeed, whenever one opens up in the Internet space, the 6-foot 3-inch Google ad sales exec always pops up on it as a possible candidate to lead a variety of digital companies and start-ups.

Finally today–after longtime speculation that Armstrong had long wanted and would eventually leave his post at Google (GOOG) in order to try his hand at being top dog–he took over as chairman and CEO of the once-mighty, but now-not-so-much, AOL.

Armstrong, 38, will start at AOL on April 7.

“For me, it is a great opportunity to go to what I consider a top-five Internet brand,” said Armstrong, in an interview with BoomTown this afternoon, with a whole lot of the diplomacy and nice-guyness he is well known for at Google and in the online advertising industry. “I am looking forward to taking what I have learned at Google and seeing what I can bring to really help AOL.”

Noting that for all its decline–pointed out by me–AOL was still one of the few “global Internet brands,” Armstrong said he thought there was still a lot of juice in the consumer appeal of AOL.

So much so, he added, that AOL owner Time Warner (TWX) has given him a lot of options for its future, from keeping it inside the larger media conglomerate (unlikely) to partnering with another company (less unlikely) to spinning it out (likely!).

“One of the things we discussed was making sure we were able to have the best outcome for AOL,” said Armstrong. “That could take the form of a lot of different paths.”

(Translation: As soon as the economy brightens, I am going to become a public company CEO, just like my soon-to-be-ex-boss Eric Schmidt!)

The move to put Armstrong in at AOL was sudden and swift, and also more than a little cutthroat on the part of his new employer, which bounced current Chairman and CEO Randy Falco and President and COO Ron Grant without a lot of warning to them or any top exec at AOL.

While there has been much talk about when Time Warner would become weary of the pair’s management of AOL–which has been rocky (most especially their overpaying for the Bebo social-networking site, which others at Time Warner never got over)–their defenestration and Armstrong’s installation happened rather quickly.

And, indeed, Armstrong confirmed that the talks to take over at AOL had only started a few weeks ago, increasing in “intensity over the last week.”

So intense, for example, that Grant only found out he was being replaced this afternoon after a personal visit from Time Warner CEO Jeff Bewkes, who made a rare appearance at AOL’s downtown Manhattan HQ to deliver the bad news.

(One AOLer’s funny, but entirely imaginary, vision: Bewkes signed up Armstrong, whose Google office is right nearby AOL in New York, and then hightailed it over to AOL to drop the hammer before the ink was dry on the contract.)

Via a coup or not, nabbing Armstrong is indeed a coup–at least from a shiny resume point of view–for Bewkes, who has been struggling with what to do with AOL for a while.

While he often affably jokes about its many problems–from declining ad sales to management turmoil to, it must be said, increasing irrelevance–Bewkes has been trying to sell off AOL or turn the asset into something more valuable for far too long.

Bewkes knows Armstrong well, as Google is a major partner of AOL in search advertising, and Google also owns five percent of AOL, in a deal in which Armstrong was involved (and whose value the search giant recently marked down).

Armstrong said he was also close to Time Warner General Counsel Paul Cappuccio.

“It was a natural fit with AOL, since I know the company so well,” Armstrong said, adding he would spend his first weeks getting to know AOL’s employees and its products better, before making more concrete strategic decisions or changing any course setting of Falco’s.

Under Falco’s plan, AOL was focusing on a three-pronged strategy: social networking and communications (People Networks), content (MediaGlow) and advertising (Platform-A).

“In general, I do want to spend time with the staff,” he said. “Some of the stuff I have seen so far has actually paid off…and a lot of the new products show a lot of passion.”

Whether he can turn passion into blockbuster products is another story, and some are worried that Armstrong’s experience is too heavily weighted in ad sales rather than in development of killer services, which is what AOL might need to recover.

But Armstrong said he had a lot of other operational duties at that search giant, noting that “Google is a very complex business.”

And both current and former AOLers hope his ad experience will allow AOL to return to its strong premium advertising roots that were less focused on of late. In fact, Falco recently hired former Yahoo (YHOO) sales head Greg Coleman to do just that.

And Armstrong has a lot of support from unusual sectors too. Wrote former AOL head Jon Miller, who was, ironically, forced out by Bewkes in favor of Falco and Grant, to me in an unsolicited email: “Count me amongst the Armstrong fan club.”

And, many staff at AOL I spoke to today–whose morale has been buffeted by layoffs and ongoing bad news–seem genuinely thrilled to score such a prominent exec.

“I am so thrilled. We couldn’t change the DNA with Rondy on top,” said one exec, referring to the derisive nickname that Falco and Grant had within AOL, which combined their two first names. “I feel really positive.”

So does Armstrong. “I am really looking forward to running AOL,” he said.

And personally, as a longtime and clearly obsessive watcher of AOL, I am looking forward to seeing him try.

Let’s just say the firing of AOL CEO Randy Falco and President Ron Grant was not exactly expected–even if everyone thought it should happen–within the high ranks of the troubled online unit, until Time Warner (TWX) CEO Jeff Bewkes dropped the guillotine this afternoon in Manhattan.

And drop it he did, quickly lopping off the pair of executives Bewkes had installed himself. He replaced them with Tim Armstrong, Google’s head of advertising sales, a man with a much brighter resume, for what is likely to be an attempt to spin out AOL now that merger options are moribund.

“It’s a shock to everyone how sudden it was,” said one exec. “Everyone talked about when Bewkes was going to run out of patience with Randy and Ron all the time, but no one knew it was coming now, since it had taken so long.”

Grant, for example, only found out about the situation when Bewkes told him in person earlier today at AOL’s offices in lower Manhattan, said several sources. Bewkes has hardly ever been there–he has a stunning office at the Time Warner Center in midtown–although Armstrong’s office at Google is nearby.

Falco might have learned about the situation earlier, but several sources said no other top exec at AOL did until about 30 minutes ago.

The whole coup came, said several sources, from corporate, which swooped and made the moves swiftly, very quickly after signing the deal with Armstrong.

(Here is an interview I did this afternoon with Armstrong after the appointment was announced.)

AOL PR did not seem to be aware of the move until this afternoon, and neither did its three top division heads: People Networks head Joanna Shields, MediaGlow President Bill Wilson or newly hired Platform-A ad leader Greg Coleman.

Yesterday, quite by coincidence, BoomTown wrote about the continued turmoil within AOL and the unhappiness with Falco, which was long-running:

“That’s caused a lot of people inside AOL and also a wider circle at Time Warner to increasingly point the finger of blame at AOL CEO Randy Falco, wondering if and when he will suffer too.

“‘Why Randy Falco gets to keep his job is a mystery to a lot of people,’ said one top exec at another division.”

Well, it is a mystery no longer, apparently, with Bewkes putting the high-profile Armstrong in place as AOL’s CEO and chairman, although he has been casting about for new leadership for a while, according to many sources, such as former Yahoo COO Dan Rosensweig.

AOL is in the midst of laying off 10 percent of its staff of 7,000, although many feel deeper cuts are needed, especially since Bewkes has been unable to complete a deal to sell it after a lot of trying.

Interest by Yahoo (YHOO) in merging with AOL, for example, has cooled and there seem to be no true suitors on the horizon. A spinoff of the division seems to be the most likely option.

Whether that includes a strategy reset for AOL or not is unclear.

Under Falco and Grant–who were derisively given the nickname Smithers and Burns from “The Simpsons,” and also “Rondy” by some inside the division who did not like them–AOL paid $850 million for the Bebo social-networking site last year, an overpriced move that has grated on many throughout Time Warner.

Under their plan, AOL was focusing on a three-pronged strategy: social networking and communications (People Networks), content (MediaGlow) and advertising (Platform-A).

But new Platform-A head (and former Yahoo sales exec) Coleman–whose business has to drive revenue growth–cannot perform miracles in such a weak environment no matter what cool new products and offerings either People Networks head Shields or MediaGlow president Wilson create.

Armstrong certainly knows sales, as head of sales efforts at Google (GOOG), although he has never operated a business as multi-faceted as AOL, which–despite its troubles–remains huge.

More to come soon…

Everyone who wondered why Randy Falco and Ron Grant were still running AOL gets an answer: Time Warner (TWX) was lining up their replacement.

Google (GOOG) sales chief Tim Armstrong becomes chairman and CEO of the troubled Web property, effective immediately.

The move is getting immediate cheers from current and former AOL employees I’ve talked to. The snap consensus is that anyone would have been better than Falco, a longtime NBC executive, and Grant, who was Time Warner CEO Jeff Bewkes’s chief lieutenant before being elevated to his role as President and COO of AOL.

But they’re particularly happy to see a sales guy running the organization: AOL once had a much admired sales operation. But in recent years, the group has been roiled, as a series of sales chiefs came and went. (From Kara Swisher, here are more details on the shakeup, and an interview with Armstrong. And here’s some early betting on Armstrong’s replacement at Google — former Doubleclick CEO David Rosenblatt has a lot of fans).

The current AOL sales chief, former Yahoo (YHOO) sales boss Greg Coleman, was installed just last month. He’s been deep into a reorg of his own.

It was desperately needed after AOL’s miserable performance in 2008, which concluded with a quarter that saw ad revenue drop 18 percent. But those plans may be up in the air now.

In any case, here is the full press release from Time Warner about the firing of Falco and Grant, after the jump:

NEW YORK, March 12, 2009–Tim Armstrong, Google Senior Vice President, has been named Chairman and CEO of AOL, LLC, Time Warner Inc. (NYSE:TWX) Chairman and CEO Jeff Bewkes announced today. Current AOL Chairman and CEO Randy Falco and President and COO Ron Grant plan to leave the company after a transition period.

In making the announcement Mr. Bewkes said: “Tim is the right executive to move AOL into the next phase of its evolution. 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. He’s an advertising pioneer with a stellar reputation and proven track record. We are privileged to have him preside over AOL as its audience and programming businesses continue to grow and its advertising platform expands globally. He’ll also be helpful in helping Time Warner determine the optimal structure for AOL.”

Tim Armstrong said: “I’m very excited about the opportunities presented in leading AOL. AOL has a wide-ranging set of assets and audience. The company is well positioned to enhance those assets into a larger share of the Internet audience and advertiser communities. AOL and Google have been partners for years and I look forward to collaborating with Jeff Bewkes and his team as we explore the right structure and future for AOL.”

Mr. Bewkes added: “Randy led AOL in its transition from a subscription business to an audience business. Under Randy and Ron, AOL’s programming sites exhibited year-over-year growth in unique visitors for 23 consecutive months with many of its sites now in the top five of their categories. They also assembled Platform-A, the number one display ad network in the U.S. with a reach of more than 90%. They also aggressively cut costs as they restructured the Audience business portion of the company into three distinct operating units: People Networks, MediaGlow, and Platform-A. As Randy and Ron move on, they leave AOL with our gratitude and appreciation for remaking the company and bringing it to a new and promising level.”

Tim Armstrong was a member of Google’s Operating Committee and served as the president of the Americas Operations. Under the Americas Operations, Armstrong’s team managed publishers and advertisers’ relationships and platforms with some of the world’s most widely recognized media and agency brands.  Armstrong started at Google in the year 2000 and opened the first office outside of the Mountain View, CA headquarters.

Mr. Armstrong joined Google from Snowball.com, where he was vice president of sales and strategic partnerships. Prior to his role at Snowball.com, he served as director of integrated sales & marketing at Starwave’s and Disney’s ABC/ESPN Internet Ventures, working across the companies’ Internet, TV, radio, and print properties. He started his career by co-founding and running a newspaper based in Boston, MA, before joining IDG to launch their first consumer Internet magazine, I-Way.

Mr. Armstrong sits on the boards of the Interactive Advertising Bureau (IAB), the Advertising Council, and the Advertising Research Foundation, and is a trustee at Connecticut College and Lawrence Academy. He is a member of Mayor Bloomberg’s MediaNYC 2020 committee.  He is a graduate of Connecticut College, with a double major in economics and sociology.

Earlier today, Silicon Alley Insider reported that layoffs at AOL, which had been announced in January, were finally taking place.

Actually, said an AOL insider, about 10 percent of the layoffs, or 70 people, have been let go since the announcement. The pace just got ratcheted up today, adding another 300 to the pyre at the troubled Time Warner (TWX) online division.

But, said several sources, the slashing of staff might go well beyond what has been announced, as AOL continues to drill down on its three-pronged strategy: social networking and communications (People Networks), content (MediaGlow) and advertising (Platform-A).

That’s no surprise since AOL’s options have landed, to say the least, in that dreaded rock-and-hard place.

The interest by Yahoo (YHOO) in merging with AOL, for example, has waxed and waned–it’s waned right now, sources said, though not completely–and there seem to be no true suitors on the horizon.

And new Platform-A head (and former Yahoo sales exec) Greg Coleman–whose business has to drive revenue growth–cannot perform miracles in such a weak environment, no matter what cool new products and offerings either People Networks head Joanna Shields or MediaGlow President Bill Wilson create.

Thus, with the ever-weakening economy, there is still fat to be cut out, especially since Time Warner CEO Jeff Bewkes either has to sell AOL off or make it work a whole lot better.

And working better likely means more cuts–and a whole lot more of them.

That’s caused a lot of people inside AOL and also a wider circle at Time Warner to increasingly point the finger of blame at AOL CEO Randy Falco, wondering if and when he will suffer too.

“Why Randy Falco gets to keep his job is a mystery to a lot of people,” said one top exec at another division.

While one might look at, say, the media giant’s magazine division and ask the same of its head, Ann Moore, the more obvious answer is that times are tough all over and not just at Time Warner.

Said an AOL insider who does not like Falco’s leadership, but was sympathetic: “He probably should have pushed to sell it off more when times were better, but that was being run by corporate, so now he just has to deal with a weak economy and an online property whose value has been declining for a long time.”

In any case, for now, there’s no joy in Mudville. When the domestic layoffs are done by the end of this month, a source said, the company will turn to international firings (it’s harder to dump folks in Europe, apparently).

But, as another baseball maxim goes: At least when it comes to cuts at AOL, it’s never over until it’s over.

Another Web company, another management restructuring!

Yahoo (YHOO) reorg fever struck AOL today too, as its advertising head, Greg Coleman (pictured here), moved the exec chairs around his domain at AOL’s Platform-A unit.

Coleman–who actually once was Yahoo’s sales head before taking the new gig at the Time Warner (TWX) online unit earlier this month–is replacing some execs and elevating others. Also there is some sleepy ad-serving stuff about the migration to its ADTECH system.

In related news earlier today, BoomTown reported that AOL International head Maneesh Dhir was leaving.

You must all know the drill by now, after endless reorg memos today, so here’s the entire skinny in the memo Coleman sent out (also, after the jump, is the 2009 goals memo sent today by AOL CEO Randy Falco that says, let’s be honest, next to nothing):

From: Coleman, Greg
Sent: Thu 2/26/2009 7:00 PM
To: Platform-A@platform-a.com
Subject: Unlocking Our Potential

Dear Platform-A colleagues,

When I met with you earlier this month, we talked about the big mission we’re embarking on and the vision I have for our future.

Over the past year, you’ve done great work integrating Platform-A and creating a powerful business from the ground up. Platform-A now provides marketers the most comprehensive and cost-efficient tools and technologies for the digital advertising space.

Just today, we took another big step forward with the migration of our ad inventory to ADTECH–an incredible challenge and a big win for us and our advertising partners. My thanks go out to the technologies and ADTECH teams who made this happen.

I’ve also been inspired by what I’ve heard from people throughout the organization, many of whom reached out to me during my first few weeks here to express their confidence in our ability to succeed.

Now, after a year of transition, key acquisitions and integration, we need to turn our attention to unlocking the full potential of this great business. And we need to move aggressively.

This will mean changes in how we’re organized, particularly in our ad sales functions. Over the next few weeks, I will be rolling out a multi-tiered plan that will address our infrastructure, make necessary role changes and bring in talent where needed. I want to tell you about some initial steps we’re taking today.

First, Don Kennedy will be stepping down as head of ad sales, a role I will assume on an interim basis. Don and I agreed that his many talents are best served in a different capacity, and I look forward to working with him in the coming weeks to define that role.

In addition, Mike Peralta will be leaving Platform-A. I want to thank Mike for his contributions to the business, and wish him well on his future endeavors. His team will report temporarily to Mark Ellis.

In addition to his day-to-day responsibilities, Mark will also be working closely with me as an advisor as we work through the changes ahead. Mark is a veteran in the Internet advertising space, and in the short time I’ve been here, I’ve quickly come to value Mark’s insights into the market and Platform-A. I’ve asked Don to lend his keen insights as an advisor during this process as well.

We will also be holding two days of meetings next Tuesday and Wednesday with regional ad sales executives to discuss the plan and get their input.

As we think about our growth and our future, please know that our mandate is clear. Even in this economy, we must ensure we have the best sales teams and the best tools across the country to serve our clients and grow our share of the market.

I came to Platform-A because I know this business has an incredibly bright future. And I know that working together, and working closely with our colleagues in MediaGlow and People Networks, we will realize that future.

Greg

AOL’s 2009 Goals

Dear AOL colleague,

This year marks the third of our three-year turnaround plan for AOL. Over the past two years, we’ve transformed the company and focused on three key growth businesses–MediaGlow, Platform-A and People Networks–positioning AOL to succeed over the long term.

Last year, we saw progress in each of these businesses. MediaGlow experienced sustained and healthy increases in users and engagement, proving we can grow our Web audience by creating experiences that appeal to people’s passions. Our People Networks unit embarked on a series of innovations and integrations that will set our social media experiences apart from the competition. On the advertising front, we integrated our acquisitions and made progress in other areas, although we continue to face challenges in premium display ad sales, which we are aggressively addressing.

If 2008 was about aligning our company against our core businesses, this year is about executing on our goals in what’s sure to continue to be a difficult market.

To succeed, we’ll need to continue operating as efficiently as possible, taking advantage of every available opportunity and remaining focused in a noisy marketplace. Our 2009 goals are designed to provide that focus. The goals may look familiar to you, which is a testament to the fact that our strategy over the past two years is the right one. As before, each of these goals will have specific metrics attached to them, which your business leaders and managers will be communicating in the near future.

Publishing. Over the past 18 months, we’ve reinvented our approach to programming, and as a result we’re successfully and efficiently reaching a younger and more valuable audience. This year, our new MediaGlow business unit will build on this momentum, launching 30 new edited niche sites and thousands of automatically programmed sites, creating original programming in our Los Angeles and New York studios and growing our audience worldwide, while continuing to enhance our ability to monetize our programming.

Advertising. Platform-A today offers advertisers easy access to the largest reach and the most sophisticated set of advertising tools available online, thanks to the integration last year of our seven advertising acquisitions. This year, we will build on Platform-A’s unmatched strengths to help marketers fully harness digital media to build brands and enhance online performance, worldwide.

Social Media. People Networks’ mission is to connect people with everyone and everything they care about. Last year, the group focused on integrating Bebo, AIM, ICQ, Goowy, Yedda, SocialThing!, Userplane and our other community properties, which combined reach more than 90 million worldwide. This year it will launch a series of innovations that leverage the strengths of this integration, starting this month with breakthrough updates to Bebo, and proceeding to a program to socialize the Web, updates to AIM and much more. In 2009, People Networks will create the most engaging and useful social media services available with the goal of making it simple for consumers to live their lives online.

Products & Technologies. In 2008, the Platforms team grew the Search business worldwide by more than 7% year over year and the MapQuest and Commerce & Marketplace teams showed strong profitability and feature innovation. At the same time, the global publishing and Relegence teams helped build out the systems that would become MediaGlow. The Products team focused its efforts on core products–Mail, Mobile, Desktop and Toolbars–that offered us the best opportunities for growth, while exiting dozens of underperforming ones. This year, the combined Platforms and Products teams will continue to innovate on these core products and services. The Technologies team will continue to improve our ability to launch and scale new sites and manage our data centers and network as efficiently as possible.

Access. Over the past two years, the Access team has done a remarkable job of managing this business, expanding margins, improving our ability to convert subscribers to free users and cutting costs, while maintaining the quality of the service. Access continues to be an important source of revenues and profit for the company, and this year, the team will continue to deliver in these areas.

Cost Management. Our efforts to effectively manage costs across the board have been a significant success, positioning AOL for the troubling economic times we currently face. In 2009, we will continue to look for ways to prudently manage our business and align costs with our ad-supported business. This isn’t just about cutting costs, it’s about smart resource allocation.

Living Our Values. Achieving our goals will mean nothing if we lose site of our company’s values. Living our values – integrity, collaboration, inclusiveness, outward focus, innovation – is a prerequisite to hitting our numbers. In 2009, we will continue to embody all of our company’s values and behaviors in everything we do.

You know as well as I do that this year will present us with new trials, new surprises and new opportunities. I’m confident that by working together, guided by these goals and our shared values, we’ll achieve much in 2009.

Thanks for everything you do every day to make AOL great.

Randy

Here’s two about big changes in AOL’s international–such that it is–unit, as the head of it–Maneesh Dhir (pictured here)–moves on.

A longtime staffer at the Time Warner (TWX) unit will “return to his entrepreneurial roots,” according to a memo from AOL CEO Randy Falco below.

Dhir has been based in India since his appointment several years ago. He came to AOL from its acquisition of Netscape in 1999.

And, in another memo from AOL President Ron Grant (also below), it looks like MediaGlow President Bill Wilson will get most of the goodies from Dhir, with all of international publishing reporting to him now, such as AOL Europe’s Dana Dunne.

(I could tell you endless stories about when AOL first entered the European market–former head Steve Case tried and failed to get to get the Europe Online moniker–but that would make you realize just what a digital antique I am.)

Here are the Falco and Grant memos:

From: Randy Falco
To: ADTECH Global; Platform-A Europe; Intl Employees; US Employees
Sent: Wednesday, February 25, 2009 9:01:13 PM
Subject: Organizational Announcement

Dear AOL colleague,

I’m writing to tell you that Maneesh Dhir, head of our international efforts, has decided that after 10 long and fruitful years with AOL, it’s time to start the next chapter in his career.

Since coming to the company in 1999 as part of AOL’s Netscape acquisition, Maneesh has made many important contributions to AOL. Most recently, of course, he was instrumental in the growth of AOL’s presence worldwide. Under his leadership, AOL went from a company with a consumer presence in just four countries outside the U.S. to one that is now in 38 countries–including India–in less than two years. Maneesh was also a key advocate for the rebuilding of our product development efforts so we could more effectively and efficiently launch products worldwide.

Just as important, Maneesh helped us learn the benefits of tapping into a worldwide pool of talent. It was his idea to open an AOL call center in Bangalore in 2002, which quickly became our largest. Two years later, he pushed for the creation of the Bangalore Development Center and the Bangalore Knowledge Center–important centers for technology, finance, analytics and shared services that are now part of the AOL India operations.

Thanks to these and many other accomplishments, we are now well positioned for global growth in all three of our key businesses–MediaGlow, Platform-A and People Networks–as well as our Products & Technologies division.

Having done all this, Maneesh told me he’s ready to return to his entrepreneurial roots. He’ll be staying on for a couple of months to help ensure a smooth transition. There will be subsequent information outlining organizational changes coming shortly.

Please join me in thanking Maneesh for all he’s done for AOL and wishing him the very best on his future endeavors.

Randy

From: Ron Grant
To: ADTECH Global; Platform-A Europe; Intl Employees; US Employees
Sent: Wednesday, February 25, 2009 9:05:37 PM
Subject: Organization Update

Dear AOL colleague,

I want to join Randy in thanking Maneesh Dhir for his outstanding contributions to AOL. I’ve known Maneesh for years, and he’s always been a tireless champion of AOL and of our global ambitions. I’m proud of all that he and his team have accomplished.

With Maneesh’s decision to return to his entrepreneurial roots, we’re taking the opportunity to make organizational changes that will build on the progress he and our international team have achieved.

Our next step is to more closely align and centralize our global publishing efforts under the newly formed MediaGlow business unit, headed by Bill Wilson. Over the last year, we have grown the MediaGlow audience dramatically through our highly efficient content development model. We believe that a more centralized infrastructure will enable us to accelerate MediaGlow’s global growth.

As a result, Dana Dunne, who oversees our European publishing business, will now report directly to Bill. In addition, our publishing businesses in India, Australia, New Zealand, Japan and Canada will all report in to MediaGlow.

We are also aligning our global technologies and search organizations under Ted Cahall. With this move, our AOL India operations led by Philip Nelson will now report in to Ted, as will Bill McGrath, who heads our ASA team and also oversees the International development team in Bangalore. Ponnapa PG will now report to Phil, who will be working with his team to finalize the India realignment over the next few weeks. Lastly, Joe Arcuri is leaving AOL Canada and his direct reports will be aligned with their counterparts in New York and Dulles.

Please join me in thanking Maneesh for his many contributions and wishing him well.

Ron

As BoomTown reported earlier today, I just got sent the entire internal email–penned and just sent out by AOL CEO Randy Falco–about the replacement of its Platform-A President, Lynda Clarizio, with former Yahoo top ad sales exec Greg Coleman.

AOL also just put out a press release confirming the move.

As new head of the Time Warner (TWX) online service’s ad unit, Coleman has his work cut out for him, turning around a business that has been hit by a severe fall-off of revenue.

“No doubt Greg is joining Platform-A at a difficult time,” writes Falco below. “The deepening economic recession is affecting every corner of the economy, including our own.”

Translation: Yahoo (YHOO) was kindergarten! Get to work pronto, Greg!

Here’s the full memo:

Dear AOL colleague,

Today we are announcing a change in the leadership of Platform-A that will help us build on the unmatched reach of our advertising business and fully leverage the success of our MediaGlow and People Networks businesses.

Greg Coleman, a seasoned advertising sales and publishing executive and former EVP of global sales at Yahoo, has agreed to join us as President of Platform-A, replacing Lynda Clarizio.

Under Lynda’s leadership, we made great progress at Platform-A–consolidating and integrating seven companies; creating a unified organization around sales, technology, operations & product management, technology sales, publisher services, R&D, international, marketing, strategic planning and network development; and expanding overseas. As a result of Lynda’s success in integrating the business, Platform-A today has the largest reach and most advanced suite of digital advertising technologies available anywhere. We all owe Lynda a debt of gratitude for her outstanding contributions to Platform-A.

Now, we have the opportunity to build on this foundation and expand premium branded display sales across our extensive and fast-growing MediaGlow programming network. And Greg, who has 25 years of media sales and publishing experience, is ideally suited to lead this effort.

During his nearly seven years at Yahoo, Greg led the company’s search and display ad sales teams. During that time, Yahoo’s ad revenues climbed tenfold–reaching more than $6 billion–with substantial ad growth in the U.S. as well as Europe, Asia and key emerging markets. For the past year, Greg has been CEO of NetSeer, a start-up focused on next generation search and ad targeting.

Greg understands that online brand building is the next frontier in digital advertising, and whoever can deliver marketers measurably improved branding online will be poised to lead over the long term. His great agency and C-level relationships will help us create breakthrough branding packages that leverage the strong success of MediaGlow and the upcoming developments at Bebo.

No doubt Greg is joining Platform-A at a difficult time. The deepening economic recession is affecting every corner of the economy, including our own. Yet, even in this volatile environment, online advertising remains the most productive, efficient and measurable way for advertisers to reach audiences that are dispersing across an increasingly fragmented media landscape. I’m confident that Greg has the background and expertise to deliver on the promise of Platform-A.

Please join me in welcoming Greg to the AOL family, and in thanking Lynda for her many contributions to Platform-A and wishing her all the best on her future endeavors.

Randy

The game of executive musical chairs among Web companies keeps on going, with sources telling BoomTown that AOL ad head Lynda Clarizio will be departing the online service and replaced by former high-ranking Yahoo ad exec Greg Coleman (pictured here).

Last week, this column first reported on former Yahoo media head Scott Moore taking a similar content job at Microsoft (MSFT), which had been vacated by Jeff Dossett, who took Moore’s job at Yahoo.

The less confusing move at AOL, with Coleman taking over for Clarizio and which has been in the works for only a week, could be announced as early as today, although I have been hearing rumors of such a development since late last week.

Clarizio has been head of Platform-A, the overall name for AOL’s advertising business, which includes a lot of various online ad companies AOL has bought in recent years.

She had been running AOL’s Advertising.com in Baltimore before being tapped to integrate them better over the last year, after a series of ad execs shuffled in and out of AOL.

But, said several sources, as a former AOL lawyer and dealmaker, Clarizio (pictured here) is not regarded by top execs the kind of nitty-gritty sales exec that AOL needs now, as it seeks to revive its fortunes.

AOL’s ad business has lagged badly of late, with owner Time Warner (TWX) pre-announcing that the online service’s results would be particularly weak this quarter. Time Warner reports quarterly earnings tomorrow.

Since a much-chewed-over possible merger with Yahoo (YHOO) has been put on ice, with the recent arrival of new CEO Carol Bartz, Time Warner and AOL execs have decided to focus on strengthening the online service and making much needed changes.

AOL recently announced a 10 percent layoff of its staff of 7,000, part of the rightsizing that has been going on.

And its valuation was also recently written down by Google (GOOG), to $5.5 billion from $20 billion several years ago.

AOL had already been in the midst of renovating its communications and social-networking assets under a new division called People Networks, which is run by former Bebo head Joanna Shields.

Its content arm has also gotten a different blog-centered direction and name–MediaGlow–under Bill Wilson.

Now, it’s apparently time for the ad leg of AOL’s three-pronged new strategy its future business is resting on to be fixed.

The hiring of Coleman came suddenly, said several sources. He had been considering a top job at another well-known online company and also was planning to move to a start-up he has been running to the Silicon Valley area.

He was hired by AOL CEO Randy Falco, whom Coleman has known for a long time, only last week, after Falco heard that Coleman was considering other positions.

Sources at Yahoo said the hiring had to be cleared by the company and Bartz, at Time Warner CEO Jeff Bewkes’s request, due to competitive issues.

Coleman is indeed an experienced online ad exec, who was at Yahoo for seven years, responsible for all advertising revenues worldwide. He came to Yahoo from Reader’s Digest.

But Coleman ran into Yahoo’s management buzzsaw after trouble hit the company in 2007. He was one of the first in a long line of execs to leave the troubled company, departing in one of its many controversial reorganizations.

But Yahoo’s ad business did grow strongly under him and former Yahoo ad exec Wenda Millard. She was also pushed out of Yahoo and now is Co-CEO of Martha Stewart Living Omnimedia.

Since then, Coleman has been running a Los Angeles-based start-up called NetSeer, which focuses on ad targeting.

Given his media background, Coleman is likely to be key to expanding premium branded advertising display sales across AOL’s advertising and programming networks.

He will move to New York and report to AOL President and COO Ron Grant, said sources, although Platform-A has key offices in Baltimore and San Francisco too.

In an unusual homecoming and odd job switcheroo between two Internet execs, former Yahoo media head Scott Moore is returning to Microsoft to lead its U.S. content efforts, according to many sources both inside and outside the company.

Moore (pictured here) will become U.S. executive producer, responsible for leading the content and programming strategy for the MSN online service. He will return to Microsoft’s Seattle area HQ in mid-March and report to Greg Nelson, GM of the MSN Global Media Group.

Microsoft (MSFT) declined comment about Moore’s new job, but sources said news of the appointment will be officially announced Monday.

But a memo about Moore’s new gig went out internally to some of the MSN staff earlier today, sources said. In fact, the return of Moore had been widely rumored inside Microsoft, even though there were several other internal and external candidates considered–including another former Yahoo, one source said–for the job.

Moore left Yahoo (YHOO), which was first reported here, last November due to unhappiness over the turmoil at the company and also to pursue a start-up idea he had about a local news site.

Moore even talked about the idea on the record with BoomTown (see video below), just as he was leaving Yahoo’s Santa Monica-based Media Group. Since he left Yahoo for good in December, Moore has been working on his start-up plans and took time off to go on a safari trip to Africa.

(Here’s a link to Moore’s Africa photos, in fact, which are quite good.)

But with the economic downturn making it harder for new start-ups to get funded on good terms, a desire to be back in the Seattle area, where his children live, and a new effort by MSN to compete better in the content business with top-ranked Yahoo, sources said Moore felt the powerful job at Microsoft would be a terrific challenge.

In what is a case of Web exec musical chairs, Moore had previously been replaced at Yahoo–in a rushed appointment–by Jeff Dossett. Dossett came to Yahoo from, wait for it, Microsoft, where he had held the job Moore is now taking.

In that move, also first reported here, Dossett was given a different title at Yahoo than Moore, as SVP of the U.S. Audience Group (Moore was SVP of the Media Group at Yahoo).

When he first started talking to Yahoo, Dossett (pictured here) was actually up for a job to run business development for Yahoo. But Moore’s sudden decision to leave had his boss, Yahoo’s EVP of U.S., Hilary Schneider, scrambling to fill the post. Dossett’s experience at MSN made him the obvious choice.

Now Moore’s appointment puts the pair in head-to-head competitive positions in the online content business, a clash that has been consistently won by Moore, when he had Dossett’s job at Yahoo and Dossett had Moore’s job at MSN.

Moore should also be comfortable at Microsoft and move into his job more easily. Previous to coming to Yahoo in mid-2005, he was president of MSNBC.com and publisher of Slate.com. He had worked at Microsoft for a decade.

Moore will oversee Microsoft’s involvement in the MSNBC.com joint venture again, along with all of Microsoft’s domestic content programming, which makes up a bulk of its efforts in the area.

And with Moore back on board, how MSN will better compete with the content juggernaut Yahoo is–due to Moore’s efforts, in part, and one of the troubled company’s stronger units–will be interesting.

That’s because Yahoo’s news, finance, sports and other properties typically rank as No. 1 online by far.

Time Warner (TWX) online unit AOL has also tried recently to improve its content offerings and has gotten some traction. It recently upped the ante with its new MediaGlow online studio effort of niche blog sites.

At the very back of this pack, Microsoft has made innumerable efforts in the content space over the years, mostly unsuccessful–Underwire!, Mungo Park!–and has settled more into the aggregation model.

But it still has a lot of interesting original content efforts under way, such as an unnamed celebrity-focused site property it is reportedly launching within the next week with former Yahoo media exec–and Moore’s former boss–Lloyd Braun.

Ironically, Moore launched a Yahoo celebrity site, omg!, initially pushed by Braun when he was at Yahoo, which has been successful.

Here is the video interview I did with Moore at his Yahoo going-away party about his future plans. Below that is another one I did when he was czar of Yahoo content, in which he talked extensively about the future of content on the Web.

Here is the letter AOL CEO Randy Falco (pictured here) has penned to the entire staff about layoffs of 10 percent of its workforce–or 700 people–and other cost cuts, which the online service is announcing today.

“We’re at a pivotal point in AOL’s transformation, and need to be even more strategically focused and operationally efficient as we weather the economic storm,” wrote Falco, in part, about the move.

As BoomTown reported earlier today, Time Warner (TWX) online unit AOL is making huge staff cuts, due to the weak economy and the ensuing deep falloff in advertising revenue, but also because of recent structural changes made to refocus the once-mighty service.

The layoffs will take place over the next several quarters, with most of the U.S. cuts to be completed by March. AOL has 7,000 employees world-wide, with most located domestically.

Here’s Falco’s letter:

Dear AOL colleagues,

I’m writing to tell you about some important decisions we’ve made about AOL’s business and why we’ve made them.

The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars.

As a result, we will be reviewing our entire organization to further align resources and expenses against the real revenue opportunities in this difficult market. Part of this will involve consolidating groups to gain efficiencies that will unfortunately lead to head-count reductions. We anticipate this will result in a net reduction of our workforce of up to 10% over the next several quarters–and we will attempt to finalize all domestic actions by the end of March. Reducing our workforce is never easy, particularly in the current climate, but our goal in doing this is to provide our core businesses the resources they need to thrive. Please know that, as always, we’ll be doing everything we can to help and support those affected, including offering severance packages and other services.

To further keep employment costs down, we will also forgo merit pay increases in 2009. This is a painful decision, but one that many companies have prudently taken to help minimize the number of layoffs they have to make.

To provide some perspective on these decisions, right now we’re two years into a three-year turnaround plan. Since day one, our strategy has focused on building and growing mutually dependent publishing, advertising and social media businesses to take advantage of the shifting media landscape. We’ve worked shoulder-to-shoulder to make considerable progress during this time.

We acquired best-in-class companies across the digital advertising space (AdTech, Third Screen Media, Lightningcast, buy.at, TACODA and Quigo, respectively) and integrated them with Advertising.com to build Platform-A, the largest, smartest display advertising platform in the world.

We grew our MediaGlow audience via an efficient content development model that in 2008 enabled us to launch more than 20 new sites that are generating significant page view (up 64% year over year in December), engagement (up 39% year over year) and unduplicated user (70+ million) numbers. This momentum will continue in 2009 with our goal of creating an additional 30+ editorially curated sites focused on consumer passion points.

We combined Bebo with our longtime community assets AIM and ICQ as well as newer acquisitions Goowy, Yedda and SocialThing, to build People Networks, gaining AOL a foothold in the critical social media space, with more announcements to come on the next phase of development in both the social media space and in the integration of social and publishing capabilities.

This progress continues to put AOL in a strong position to capitalize on our new business model when the recession ends.

In addition to focusing our investments, a successful turnaround plan also requires us to realign our cost structure against this three-pronged business model–making difficult decisions to cut costs in areas that aren’t critical to our growth. Splitting out the Access business improved the transparency of what’s working and what’s not, and allowed us to make better decisions about exiting businesses that weren’t performing while investing in growth areas. A successful turnaround plan also mandates we control costs, operate with healthy margins and position the company for sustainable growth. As you know, we’ve moved repeatedly to bring discretionary expenses in line to spare across-the-board job cuts.

But we’ve also had to make many hard decisions along the way. And this moment is no exception. We’re at a pivotal point in AOL’s transformation, and need to be even more strategically focused and operationally efficient as we weather the economic storm.

In addition to the head-count reductions and the 2009 merit pay decision, we are also making changes throughout the organization to improve efficiency and better align it to our three core businesses. This includes a review of our international operations and our global shared-services functions. In addition, we will continue throughout the year to carefully and thoroughly review all our products and services to make sure every one fully supports our strategy and has the potential for growth.

Finally, we are going to realize significant savings by continuing to consolidate our facilities–for example, moving from two buildings to one in Mountain View, from two floors to one in Los Angeles, and leasing unused space on our Dulles campus.

With these and other changes, we will take significant annual run-rate costs out of our business while, importantly, retaining the flexibility to invest in our growth strategy.

I know all this will raise questions, but I wanted to share as much as I could with you now. Senior management will provide more details as appropriate to their teams in the weeks ahead.

As difficult as things look right now, the economy eventually will turn around. Some companies will use this time prudently and make difficult decisions to come out of it in better shape–growing toward areas of opportunity, scaling back in others and maintaining a line on costs all around. Our only choice is to be one of these companies. With your continued hard work and dedication, we will position ourselves to emerge a stronger company ready to lead in a vibrant online market.

Randy

Time Warner online unit AOL is cutting 700 employees due to the weak economy and the ensuing falloff in advertising revenue, but also because of recent structural changes made to refocus the once-mighty service.

AOL CEO Randy Falco sent a memo this afternoon to AOL staff about the layoffs and other cost cuts being made, confirming the moves.

The 10 percent reduction in workforce will take place over the next several quarters, with most of the U.S. layoffs to be completed by March. AOL has 7,000 employees world-wide, mostly located domestically.

AOL is also eliminating merit raises, just as Yahoo (YHOO) and other digital companies have done recently, and consolidating facilities.

While Time Warner (TWX) has been trying to sell AOL to Yahoo, the online unit has also been shifting its resources, as part of a long-term turnaround plan. It has focused the company on three parts: its Platform-A ad unit; its communications and social-networking arm, People Networks; and its recently launched MediaGlow content studio.

It has also been in the midst of splitting out its longtime access business, which has provided the bulk of AOL’s revenues and profits, which sources said has given its top execs insight into what its future business model should be.

Besides the layoffs and cost cuts, sources said AOL was also looking at paring its international business, which has never been particularly successful.

As part of its ongoing moves to make New York its main HQ, AOL will also be consolidating facilities in Silicon Valley, Los Angeles and at its original homestead in Dulles, Va., although not closing it completely.

Much as throughout the online advertising industry, AOL has seen drastic declines in growth. In a recent financial report, AOL said its ad business dropped almost 20 percent year over year.

And AOL’s worth has also declined, with Google (GOOG) recently writing down its 2005 investment of $1 billion in the online service, which valued it then at $20 billion. It is now valued at $5.5 billion.

Yesterday, TechCrunch’s U.K. blogger Mike Butcher spun the tale of buyer’s remorse run amok with a report that Time Warner online unit AOL was “seriously considering selling Bebo, the social network it acquired for $850 million only a year ago,” citing poor performance and a bad advertising market.

Later, AOL went on the record saying “there is no truth to this rumor,” although Butcher–in a third update to his piece–insisted otherwise from his sources.

In my favorite hedge ever, Butcher noted: “I’m not saying Bebo is formally on the block, but I am saying that a sale is something under consideration.”

Well, actually, no.

What is true, which Butcher did do an excellent job outlining, is that AOL most certainly overestimated the prospects for Bebo as an advertising and growth vehicle, hoping that Bebo’s interesting new media offerings–like its “KateModern” online series–combined with a social network, were the magic bullet.

It did not hurt that Bebo was then being sold to advertisers by its very deft top exec Joanna Shields, who is now head of AOL’s People Networks.

Thus, AOL woefully overpaid for it, especially if you look back from the current dire economic environment and also now realize that social-networking advertising is a little bit harder to get going than promised (a shock, I know).

No inside sources you talk to at AOL or Time Warner (TWX) will deny any of this today, and Time Warner CEO Jeff Bewkes has even said so publicly.

This was not exactly a secret then either. As I wrote right after the sale last March:

What’s AOL getting for its $850 million in cash to purchase social-networking site, Bebo?

A very attractive social-networking service and a very experienced exec who has been running it.

But, perhaps more importantly for those who focus on pesky numbers, not a whole lot of revenue and negligible profits, judging financial information I got a gander at, courtesy of sources at several companies that looked at funding or buying Bebo.

And the rest of the overall outlook for Bebo? A small but growing business, with nice user engagement with strong page views and minutes spent per session, but little traction beyond Britain and Ireland, and too small a presence in the critical U.S. market.

(Bebo is also strong in New Zealand, but BoomTown does not have to point out that that country is not exactly the kind of game-changer that AOL CEO Randy Falco mentioned in his email to the troops about the purchase.)”

And in another post I did at the time:

Thus, I am still trying to figure out why AOL–which was built on the pillars of community, communications and connectivity–has consistently not been able to leverage its still-valuable assets.

I suppose it is sexier to do a big, splashy deal, of course, which takes focus away–for a while at least–of the essential need to take hits, while doing the slow block-and-tackle work it will require to really build a strong ad and social network.

Buying Bebo, the third-ranked social network, for so much and trying to turbocharge it is a very lofty goal, of course, but the real problem with the acquisition is that it feels like an answer in search of a question.

While Bebo President Joanna Shields–who will enter the AOL exec team as part of the deal–and the Birches have clearly built a very interesting property, the weight of Falco’s calling it a “game-changer” on which AOL’s future rides could turn out to be much too much for Bebo to carry.

That is, especially with that heavy bag of Time Warner cash it is also shouldering.”

That’s why it takes about two seconds these days to uncover much residual anger within both AOL and Time Warner about the huge slug of cash that the company handed over to get Bebo, which mostly went to its quirky founders (who, many sources told BoomTown, thought they were underpaid!).

But, even so, that does not mean Time Warner is going to pull yet another stupid Internet trick–remember this was the company that sold itself to AOL for a song back in 2000, in what is now considered one of the worst merger deals ever–and sell Bebo for bupkis.

In fact, spending even more effort, it has been trying to use Bebo as the main vehicle to renovate all its communications assets, including its unsung AIM and ICQ instant messaging properties.

The center of the People Networks, run by Shields, Bebo is the third leg of the “new” AOL, as it has been recently touted, with its Platform-A ad unit and new niche content studio called MediaGlow as the other parts of the stool.

Will it all work? Will Time Warner change its mind? Will Shields give up? Will even the AOL brand continue?

“Who knows?” is the right answer, of course. With Facebook, MySpace, Yahoo (YHOO), Microsoft (MSFT) and Google (GOOG), as well as Twitter and FriendFeed, all vying to be the consumer’s dashboard to the Web, no one actually does.

And, if Time Warner is truly interested in selling off AOL whole, as it has been trying to do mightily, you might wonder if it would suddenly change course and dismember it now, causing even more confusion, when it is already facing so many other more pressing complications–all for a lousy price in the current weak economic landscape?

I called it “insane” when AOL bought Bebo for so much last year. I’d be dubious if it would get crazier still.

But if you want to see Shields in action–be careful, as she apparently so persuasive she could probably sell a big bailout to a Republican–take a look at this video I did a while back before the AOL acquisition:

Although its advertising business is tanking this quarter and its merger deal with Yahoo remains dormant, AOL is focusing on one of the brighter spots in its business: the popularity of its content sites.

Today, the Time Warner (TWX) unit will announce the expansion of its publishing unit, which it is curiously called MediaGlow.

A deep dive into content, especially when the advertising market is also in a sharp downtown, is an interesting move, to be sure, although it makes sense for AOL to double down in the areas it excels in.

In a press release obtained by Boomtown, which will be released later today (but you can see below), AOL said it would develop over 30 new sites in 2009, employing the low cost, niche-focused model that has worked well at many of its 75 existing sites.

AOL’s content sites, which are typically the No. 2-ranked in a variety of categories to those at Yahoo (YHOO), have grown significantly in recent years, as the company has become more Web-focused.

AOL claims it has 70 million unique monthly visitors for its content sites, with page views up 40 percent year-over-year.

AOL content czar Bill Wilson–with a spanking new title of President of MediaGlow–will lead the publishing effort, which will include new “state-of-the-art” studios in New York and Los Angeles.

That essentially means several hundred content-focused employees with a whole army of free-lancers, to create both original and aggregated content.

AOL is calling MediaGlow the third leg of its business model, with its People Networks (communications and social assets) and Platform-A (advertising) as its other two.

Here’s the full press release on the move:

AOL ANNOUNCES EXPANSION OF PUBLISHING UNIT WITH THE CREATION OF MEDIAGLOW

#1 Country Music Site: TheBoot
#1 Hip-Hop Music: The BoomBox
#1 Men: Asylum
#1 Style: StyleList
#1 Women’s Blogs: Lemondrop
#1 African American: BlackVoices
#1 Music: AOL Music
#1 Retail Tickets: Moviefone.com
#1 Television: AOL Television
#2 Horoscopes: AOL Horoscopes
#2 Latino: AOL Latino
#2 Business- News/Research: AOL Money & Finance
#2 Entertainment-News: TMZ
#2 E-mail: AOL E-mail
#3: Movies: Moviefone.com
#3 Real Estate: AOL Real Estate
#3 Health: AOL Health
#4 News: AOL News
#4 Technology: AOL Tech
#4 Women’s: AOL Living
#5 Search: AOL Search Network
#5 Weather: AOL Weather
#5 Home: AOL Home
 
* Based on a custom pull of November 2008 comScore Media Metrix data. (Note: the People Networks unduplicated reach figure excludes AIM Mail.)
** Categories for Asylum, BlackVoices, Horoscopes, Latino, Lemondrop, TheBoomBox, TheBoot and StyleList have been custom built by AOL.