Tricia Primrose (pictured here), AOL’s long-serving communications head, is stepping down from her job, according to a memo sent out by CEO Tim Armstrong to staff.

The move is personal, related to her family, according to the memo (which you can see below).

Except for BoomTown’s record run, Primrose is unusual in the length of her tenure and number of AOL (AOL) exec administrations she has survived, including Steve Case and Bob Pittman, Jon Miller, Randy Falco and Ron Grant and now, Armstrong.

To say nothing of the myriad of changes and controversies at the long-suffering Internet icon, such as its disastrous merger with Time Warner (TWX).

And those have recently included its spinoff from the media giant and its 25th anniversary celebration.

That deserves some kind of medal!

And I, for one, will miss her and her consummate professionalism throughout some decidedly dicey times. Being both loyal to AOL and honest about tough situations is no easy task, but Primrose always managed to do it unflappably and with class.

Since Armstrong took over, though, most of the company’s most recent senior management team has turned over, with Primrose being one of the last to go.

Primrose will be staying until a replacement is found and will be part of the selection process, according to the staff email.

Here is Armstrong’s internal memo:

AOLers–

As we discussed in our all hands meeting two weeks ago, our Company is about people and our brands are a reflection of the people who work on them. There is one person that has worked tirelessly toward communicating both internally and externally about the progress and challenges we have faced as a business and a team–Trish Primrose. Trish has been with AOL for over 13 years and has been at the eye of the storm of one of the most well-known brands, in one of the most well-known industries.

I wanted to let you know that Trish will be stepping down as the Head of Corporate Communications for AOL and transitioning into an advisory role at the Company which will allow her to spend more time with her family. Trish has been an exemplary executive in her role and she has become a good friend in the process which is why I understand this change makes total sense for her. As many of you know, since returning home to Virginia in December last year Trish has been commuting, spending part of every week in the NY office–a schedule that has required her to sacrifice a lot of time away from her husband, Doug and daughter, Callie. People who know Trish well know that while she is the ultimate perfectionist at work, the thing she is proudest of is her family.

Trish will leave the role having completed one of the most important events and stepping stones in the history of the Company–AOL’s re-emergence as a stand-alone public company. Trish played one of the key positions in that transition and she has built a team that has bridged the past with the future. Trish’s most recent efforts culminated in AOL’s 25th Anniversary celebration which was a success that won’t be forgotten and is a highlight for all of us. Trish and her team will continue to be instrumental in our success. We will be opening an external and internal search for a successor.

We’re grateful that we’ll be able to tap Trish’s experience in ensuring that the Company doesn’t miss a beat during this period. And while we’re thrilled she will be continuing with us in an advisory role, please join me in thanking Trish for her efforts on behalf of AOL. –TA

The payouts are part of a broader reorg CEO Tim Armstrong has put into place since coming aboard from Google (GOOG) a year ago. And most of the eye-popping sums are really a reflection of employment contracts the executives signed with the company when it was run by Time Warner (TWX). Still, they’re big numbers:

• Former CEO Randy Falco: $11.6 million
• Former COO Ron Grant: $7 million
• Former COO Kim Partoll, who replaced Grant last June, but left in September: $6.2 million
• Former CFO Nisha Kumar: $3.6 million

Some of these payouts will keep going. Falco and Grant, for instance, will continue to be on the AOL payroll through the end of this year. Falco will get $1 million in salary, plus a $3.25 million cash bonus, while Grant will earn $750,000 and a $1.6 million bonus.

And as PaidContent notes, CTO Ted Cahall, who made $1.6 million last year, received a “retention payment” of $354,000 on Jan. 15. Ten days later, Armstrong announced that Cahall was being replaced, too.

To put the payouts in perspective: AOL (AOL) said it spent $190 million on restructuring charges last year as it began shedding a third of its workforce.

[Image credit: DVIDSHUB]

Little by little, AOL is offering investors more and more details about what the company will look like after it spins off from Time Warner (TWX).

The problem: The more AOL discloses, the less attractive the company looks.

The most recent nuggets come from a preliminary prospectus Time Warner filed with the Securities and Exchange Commission yesterday. Some, but not all, of this has broken out in previous filings or earnings announcements. In any case, it helps to see it all in one place.

The big picture: AOL’s subscription service, which accounts for the “vast majority” of the company’s operating income, is withering away. But advertising revenue, which was supposed to replace that money, has been declining for nearly two years (see tables below; click to enlarge):

And here’s a closer look at the ad business and its recent performance:

The good news for AOL is that some of this is the result of self-inflicted wounds, and it’s possible to heal some of them. The company’s previous regime seemed to go out of its way to mismanage and dismantle the sales force, for example, and if new CEO Tim Armstrong can rebuild that team, he can make a bit of headway.

The flip side is that some of AOL’s woes may be well beyond Armstrong’s control. Money from a Google (GOOG) search deal, which provided a third of AOL’s $2.1 billion in ad revenue last year–and had been increasing up until this year–is now dropping off, too.

Google dollars fell by $42 million in the most recent quarter, representing more than half the $75 million drop in ad dollars from its AOL Media unit. And Google income fell by $90 million in the last nine months, representing about 40 percent of $197 million decline in that period.

AOL says some of the Google decline stems from its declining subscriber base, which brought down search query volume. The rest is due to lower revenue per search query–that is, Google has changed its algorithm in way that ends up punishing AOL. But Armstrong can’t do a whole lot about either of these variables.

He can try extracting more money from Google, whose search deal expires at the end of next year, or from Microsoft (MSFT), which is trying to gain share any way it can.

Earlier this year, Armstrong turned down a new deal from Google and now says he’ll deal with search after he gets other things in place. But the longer he waits, the less leverage he may have.

AOL shareholders will be paying Armstrong well to figure this out, though. His three-year deal pays him a base of $1 million a year, plus annual cash bonuses of up to $4 million. In addition, he’s getting $20 million worth of stock grants to make up for Google shares he left on the table when he resigned from his old employer. And he’ll get stock options worth as much as 1.5 percent of the company once the spinoff is complete.

That said, AOL will also be paying former AOL CEO Randy Falco, who got tossed out in March. Falco will continue to pull down a $1 million salary through 2010–and he’ll get $7.5 million in bonuses through then as well. Former AOL COO Ron Grant, meanwhile, will earn $750,000 a year, plus another $3.3 million in bonuses.

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.

According to an internal memo obtained by BoomTown, Joanna Shields, who came to AOL via its troubled acquisition of the Bebo social-networking site, will be returning to London to spend more time with her family and to “pursue entrepreneurial interests.”

(She is pictured here with former AOL CEO Randy Falco and former AOL President Ron Grant after Bebo was bought in 2008.)

Until recently, People Networks has been the third leg of the Time Warner (TWX) online site’s businesses, which also include advertising and content.

But under new CEO Tim Armstrong, who was one of the top sales execs at Google (GOOG), AOL is largely abandoning its business-unit approach for a more functional and centralized structure.

Armstrong is prepping AOL to be spun off, and has been trying to shape it into a more streamlined organization focused on core assets but run in a more top-down fashion.

Bebo has always been a thorn at AOL, since it was acquired for $850 million last March. It was a huge price for the social-networking site, which was much smaller than leaders Facebook and MySpace.

Ironically, Shields, who negotiated the deal, got a lot of internal flak for getting that much for Bebo. That doubtlessly got worse after both top AOL execs who bought it from her, Falco and Grant, got pushed out in favor of Armstrong.

Under Shields, People Networks–which also includes AOL’s AIM and ICQ instant messenger services–has been introducing a variety of social products and updated offerings.

It is now poised, as you can read in Shields’s memo below, to release a new version of AIM and ICQ.

Here’s Armstrong’s full memo to the AOL troops below, as well as Shields’s memo to her staff:

Team -

We’re now near the half-way mark of our 100 Day Plan, and we’re making good progress in putting together the details behind the strategic priorities I talked with you about two weeks ago. I’m looking forward to speaking to you more about this later this week at a company All-Hands on Friday.

In the meantime, I want to update you on some organizational news. Joanna Shields has decided to step down from her role as President of People Networks/EVP of AOL and return to London to reunite her family and explore her entrepreneurial interests. At her core, Joanna is a start-up executive, having taken numerous companies through the process of rapid growth and acquisition.

Following the company’s acquisition of Bebo last year, where Joanna served as chief executive, she moved to New York to help AOL unlock the value of our social assets and re-establish AOL as a leader and innovator in the area of social networking and communications–two areas this company pioneered. The result was numerous innovations in AIM and ICQ, the launch of Socialthing, along with continued upgrades to Bebo. I’m happy to say that Joanna will continue to serve as an advisor to the company working with our acquisitions and new ventures, so while we won’t be seeing her on a daily basis, she will remain an important member of the AOL family.

Joanna is a very strong and well-known entrepreneur and has been a very valuable member of our executive team. Please join me in thanking Joanna for her many contributions and wishing her safe travels as she moves her family back to London–TA

Dear Team,

I wanted to let you know that after much deliberation and with a heavy heart I have decided to move on from AOL. I am returning home to London to reunite with my family and pursue my entrepreneurial interests.

It has been a remarkable year and I feel incredibly lucky to have spent this time with you. I have been blessed to be part of many success stories in the past from RealNetworks and Google through to Bebo and my time with you at AOL will go down as one of my proudest.

People Networks was born a year ago to solve some of the toughest problems facing online consumers today. Despite (and perhaps because of) all the innovation we’ve seen in the last few years there are too many online services to monitor, too many profiles to manage and too many “social graphs” to maintain. The web is an amazing platform for content, community and communications, but these three rarely happen in one place, resulting in online conversations that are fragmented and disconnected. Our vision was to connect people with everyone and everything they care about and through a combination of great talent, hard work and brilliant assets we managed to create some amazing experiences to do just that.

We started with our industry-leading products AIM and ICQ and are now just about ready to re-invent instant messaging as the world knows it to become the default product for both private and public conversations and social and status updates. We leveraged the incredible passion and talent at Bebo, launching numerous innovations and expanding into 7 new countries while maintaining our leadership in user engagement and innovative monetization. And finally, we assembled a small, yet powerful group of entrepreneurs, to build a platform for socializing the web in record time, receiving rave reviews from publishers and partners working with the Socialthing team. I can’t wait for the world to get a glimpse of our new client this summer combined with the evolution of Socialthing as it finally creates a way for conversations and social interactions to happen anywhere on the web.

You should all feel proud of your role in our success.

I wanted to say thank you for everything I’ve learned from you this past year. I loved the fact that we challenged each other every day, from our offsites and product summits to our Thinktanks and day-to-day meetings. In the end we came up with phenomenal products that will make a lasting impact–and we are just on the verge of revealing these plans. I feel so privileged to have had the opportunity to think with all of you, to break down the barriers of the old ways, to innovate again and to re-invigorate this company. I believe in you and I am so very proud of you all. Don’t let the constant swirl of changes around you take you off course. Feel confident about the decisions we have made and the path we are on. Stay focused on delivering the products you believe in and I know you will win.

I leave you in capable hands with Tim and I know he will continue to support you. I remain, as always your friend.

Joanna

This is just too cute to pass up. Apparently, some staffers at AOL are using a teeny-weeny cartoon–seen here–of new CEO Tim Armstrong as the icon on their instant messaging program.

It was apparently made for Armstrong by AOL’s owner, Time Warner (TWX).

Sorry it’s so little, but the picture gets blurry if made larger.

The strapping-in-real-life former Google (GOOG) advertising head took over AOL unexpectedly two weeks ago, after its two leaders, CEO Randy Falco and President Ron Grant, were shown the door.

Since he got the job, the big version of Armstrong has been busy making the rounds, even though he does not officially start until April 7.

But Armstrong (pictured here in non-superhero form), many sources said, has been talking up many current and former AOLers–many from its glory days–to learn as much as he can about what he needs to do to force the once-mighty online icon back to relevance.

He’ll likely start with a spinoff of the service, and sooner than later, especially if the stock market continues to not tank so much.

Of course, to make the most of that, it’ll take a bolder strategy from Armstrong than just selling more advertising, getting a better search deal, adding more content and creating new social-networking widgets.

In fact, here’s a free tip for Armstrong from someone who has watched the slow-moving AOL train wreck for far too long: Think much, much bigger than a tiny Tim does.

More on that, soon…

As soon as he got his new job last week, new AOL Chairman and CEO Tim Armstrong sent out a rather hopeful email to the troops–his first communication as the latest leader of the ragtag online service.

“I’m really looking forward to seeing you and would love to hear your thoughts and suggestions,” wrote the former Google (GOOG) exec Friday (who alarmingly kind of resembles this Elvis image), “on how to make AOL and its sister properties the most powerful brands on the Internet.”

Well, one can hope!

To goose that dream, although he still does not officially start in the job until April 7, Armstrong is also addressing all the troops tomorrow at 11 am EST and has chosen to do so from, of all places, AOL’s old center of power in Dulles, Virginia.

AOL staffers I spoke to also hope most of all that Armstrong will quickly and transparently lay out plans for a spin-out of the Time Warner (TWX) online unit from the media conglomerate, where it has languished for years.

“Armstrong would not have taken the job if the plans for a spin out of AOL were not in place and it’s in everyone’s interests to signal that it’s a go right away,” said one source close to the situation. “The only catch is the poor economy, but even that should not prevent Time Warner from doing what’s right to finally fix AOL.”

And sources said Armstrong could further up the ante tomorrow and help raise the layoff-weary morale by having some former AOL execs from its glory days as the top online player in person at the event.

Several sources said one exec most likely to make an appearance is Ted Leonsis (pictured here), one of AOL’s most colorful top early execs and a longtime inspirational figure within its ranks.

Unlike most AOL execs from those days, many of whom were eventually run out on a rail, Leonsis also stayed on through its disastrous merger with Time Warner and beyond.

But, like all of the Dulles complex–which was once the bustling worldwide HQ for AOL–Leonsis finally left the company, after a falling out with the management regime that Armstrong just hipchecked out of power. He is now AOL’s vice chairman emeritus.

Both CEO Randy Falco and President Ron Grant moved AOL’s locus largely to New York, and minimized the staff and influence at Dulles, where most of AOL’s products have been made since its origins in the early 1990s.

“It’s a smart move to go to [the Dulles staff] directly first…the last regime pretty much shut them out…and that created bitterness, when we need to be unified,” wrote one AOL insider to me in an email.

(Sidenote: As the AOL beat reporter at the Washington Post back then, I actually went with then-PR head Jean Case to look over what became the Dulles facility, to see if it would be a good place to expand to; previously, AOL was located in nearby Vienna, behind a car dealership.)

A Leonsis visit at AOL will be like old home week, although some are hoping too that former AOL CEO Steve Case could also make an appearance. He and Leonsis still make online investments together.

But that might still be deeply controversial within Time Warner, where Case and also former Time Warner CEO Jerry Levin are widely blamed for situation that the company found itself in when the Web 1.0 bubble burst and AOL’s once vaunted valuation collapsed.

Although Case and Time Warner CEO Jeff Bewkes have since moved on, bygones have not been bygones within Time Warner.

And, while it is often denied by top execs, AOL has suffered because of ill-hidden grudges, which have partly prevented it from being revived, even as other Internet giants have been born in the interim.

Ironically, many of the current crop of shooting stars owe a lot to the pioneering and innovative AOL products, including: its AIM and ICQ instant messaging services, which echo an early version of Twitter; the “Buddy List,” which was all about friending; and its deep social networking roots, with chat rooms and profiles that were the Facebook of its day.

The question for Armstrong is: Can AOL go home again?

BoomTown has a feeling that the very friendly new AOL CEO and Chairman, Tim Armstrong, is not going to waste his time chasing down and threatening to drop-kick leakers into outerspace.

At least I hope he has better things to do! Like, you know, turning around the troubled Time Warner (TWX) online unit.

So here is his first memo to AOL staffers, leaked to me. (Don’t go all Bartz on me, Tim, because it won’t work anyway!)

Last week, in a surprise move, the former Google (GOOG) advertising honcho was picked to replace ousted CEO Randy Falco, as well as President and COO Ron Grant, by Time Warner CEO Jeff Bewkes.

(Here’s a link to an interview I did with Armstrong last Thursday about the new job.)

Armstrong did not waste his time taking over, although he does not start until April 7, penning a short-but-sweet email to AOL employees world-wide.

Here it is, in its entirety:

From: Tim Armstrong
To: US Employees; Intl Employees
Sent: Friday, March 13, 2009 9:24:54 AM
Subject: Hello AOLers

Hello AOLers -

I’m really looking forward to seeing you and would love to hear your thoughts and suggestions on how to make AOL and its sister properties the most powerful brands on the Internet.

My experience online started with AOL and I’ve followed the progress of the company for many years. From the early days of AIM and ICQ to the modern technology of Platform-A, AOLers are responsible for some of the most important innovations on the Internet. Although others might see challenges at AOL, I see opportunity and people who are passionate about making great products and services for consumers. My thanks to Randy and Ron for the work they’ve done to position AOL for the future.

I hope to meet as many of you as possible in Dulles and New York sometime next week, and I look forward with great enthusiasm to starting at AOL in early April. Go AOL.

- TA

For instance, BoomTown was in Rome earlier this week attending a conference on business, brand and innovation that happens only once every seven years–and one of the biggest takeaways? Hardly any Italians have heard of Twitter, and those who have don’t really use it. Well, that, and conversations with Arianna Huffington, Reid Hoffman, and several Italian business leaders. Mark Zuckerberg, though, is most definitely plugged into the white-hot microblogging service. This week, he used his Twitter account, plus an appearance on “Oprah,” as a platform to herald the launch of Facebook’s own Twitteresque homepage redesign. In other news, Time Warner (TWX) CEO Jeff Bewkes laid off AOL President and COO Ron Grant and Chairman and CEO Randy Falco. BoomTown interviewed Falco’s replacement, Google (GOOG) ad sales exec Tim Armstrong, who’ll start at AOL as Chairman and CEO on April 7.

MediaMemo had the full memo from Time Warner on the Falco/Grant-Armstrong transition and also spoke with Boxee CEO Avner Ronen this week. Boxee is the start-up that lets you watch Web video on your TV, basically bypassing your cable box. Which is probably why it’s caught up in a cat-and-mouse game with Hulu, the joint venture between GE’s (GE) NBC and News Corp.’s (NWS) Fox that would much rather have you watch TV on the Internet instead. Guess who’s the mouse? Still, Hulu is down two networks, ABC and CBS (CBS)–though presumably, the aim is to offer all three. (News Corp. is the owner of Dow Jones, which owns this Web site.) MediaMemo also noted that Google rolled out its behavioral targeting functionality this week and points out that we all might be hearing a lot more from a man named Rick Boucher in the near future as a result.

Behavioral targeting wasn’t the only thing that Google rolled out this week–it also launched Google Voice, the initiative based on the company’s acquisition of voice communications start-up GrandCentral. Digital Daily covered the story. Elsewhere in the telecom world, major Palm (PALM) investor Roger McNamee made some bold (read: crazy) assertions about iPhone users switching en masse to the Pre, which later needed to be clarified (read: backed away from) by Palm itself. RBC analyst Mike Abramsky is also bullish on the Pre and its WebOS, but in a less crazy way. He gave it a glowing write-up on Friday. For a product that hasn’t yet been given a price or a launch date, it’s certainly building itself some high expectations. Of course, it’ll need to fulfill them to compete with the ever-evolving iPhone, which for which Apple (AAPL) is having a press event Tuesday to announce version 3.0 of the device’s OS.

Walt Mossberg reviewed the new version of Apple’s ever-evolving iPod Shuffle this week, which has the distinction of being the first mp3 player to “speak.” His verdict was in Wednesday’s Personal Technology column. In Mossberg’s Mailbox, Walt answered questions about using a stylus with the iPhone and offered an explanation on how to change Apple’s Safari 4 beta so that it looks and works more like the previous version. And in this week’s Mossberg Solution, Katie Boehret took a look at iSkoot’s Notifier, an app designed to endow basic cellphones with smartphone-like capabilities.

More next week. And beware the Ides of March. Or not.

For instance, BoomTown was in Rome earlier this week attending a conference on business, brand and innovation that happens only once every seven years–and one of the biggest takeaways? Hardly any Italians have heard of Twitter, and those who have don’t really use it. Well, that, and conversations with Arianna Huffington, Reid Hoffman, and several Italian business leaders. Mark Zuckerberg, though, is most definitely plugged into the white-hot microblogging service. This week, he used his Twitter account, plus an appearance on “Oprah,” as a platform to herald the launch of Facebook’s own Twitteresque homepage redesign. In other news, Time Warner (TWX) CEO Jeff Bewkes laid off AOL President and COO Ron Grant and Chairman and CEO Randy Falco. BoomTown interviewed Falco’s replacement, Google (GOOG) ad sales exec Tim Armstrong, who’ll start at AOL as Chairman and CEO on April 7.

MediaMemo had the full memo from Time Warner on the Falco/Grant-Armstrong transition and also spoke with Boxee CEO Avner Ronen this week. Boxee is the start-up that lets you watch Web video on your TV, basically bypassing your cable box. Which is probably why it’s caught up in a cat-and-mouse game with Hulu, the joint venture between GE’s (GE) NBC and News Corp.’s (NWS) Fox that would much rather have you watch TV on the Internet instead. Guess who’s the mouse? Still, Hulu is down two networks, ABC and CBS (CBS)–though presumably, the aim is to offer all three. (News Corp. is the owner of Dow Jones, which owns this Web site.) MediaMemo also noted that Google rolled out its behavioral targeting functionality this week and points out that we all might be hearing a lot more from a man named Rick Boucher in the near future as a result.

Behavioral targeting wasn’t the only thing that Google rolled out this week–it also launched Google Voice, the initiative based on the company’s acquisition of voice communications start-up GrandCentral. Digital Daily covered the story. Elsewhere in the telecom world, major Palm (PALM) investor Roger McNamee made some bold (read: crazy) assertions about iPhone users switching en masse to the Pre, which later needed to be clarified (read: backed away from) by Palm itself. RBC analyst Mike Abramsky is also bullish on the Pre and its WebOS, but in a less crazy way. He gave it a glowing write-up on Friday. For a product that hasn’t yet been given a price or a launch date, it’s certainly building itself some high expectations. Of course, it’ll need to fulfill them to compete with the ever-evolving iPhone, which for which Apple (AAPL) is having a press event Tuesday to announce version 3.0 of the device’s OS.

Walt Mossberg reviewed the new version of Apple’s ever-evolving iPod Shuffle this week, which has the distinction of being the first mp3 player to “speak.” His verdict was in Wednesday’s Personal Technology column. In Mossberg’s Mailbox, Walt answered questions about using a stylus with the iPhone and offered an explanation on how to change Apple’s Safari 4 beta so that it looks and works more like the previous version. And in this week’s Mossberg Solution, Katie Boehret took a look at iSkoot’s Notifier, an app designed to endow basic cellphones with smartphone-like capabilities.

More next week. And beware the Ides of March. Or not.

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.

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

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.

Last week–in a clear sign that BoomTown has spent way too much face time in front of the idiot box–I compared the endless bickering back-and-forth between Yahoo CEO Jerry Yang and Microsoft CEO Steve Ballmer to the annoying push-me-pull-you antics of Ross and Rachel on the television show, “Friends.”

But the continuing discussions between Yahoo and AOL execs over the merger of their struggling online companies have their own TV comparison–the never-ending roundelay on “The View.”

In other words: Blah, blah, blah. Chitter-chatter. Pointless arguing. Chin-scratching. More blah, blah. More chatter. Blah.

Thus, there were still more discussions going on at Yahoo HQ this past week about the possible deal, in which Yahoo is code-named Yale and AOL Amherst.

Along with Yahoo CEO Jerry Yang and President Sue Decker, the key Yahoo (YHOO) execs involved in pushing forward the effort, are U.S. head Hilary Schneider, and Greg Mrva, a former investment banker and analyst who is in charge of mergers and acquisitions at the company.

As I previously wrote, the main suits involved in repping the Time Warner (TWX) unit are AOL President Ron Grant and Time Warner M&A SVP Jim Burtson.

“More of the same discussions about how it would all integrate,” said one source close to the situation at Yahoo. “Same as always.”

Added an AOL source, in what I consider the understatement of the year: “There has not been a lot of clarity in decision-making at Yahoo.”

Big surprise: Still no deal!

That’s unusual to me, since all the true obstacles–namely, the collapse of the controversial search advertising deal Yahoo tried to strike with Google (GOOG), AOL and Yahoo’s results coming in as weak as expected and, lastly, a definite lack of interest from Microsoft (MSFT) to rebid for Yahoo–are no longer in the way.

And, of course, Yahoo’s share price–the stock has settled into the depressing $11 to $12 range that gives the company a $15.7 billion valuation–is simply not going up any time soon.

So, if the deal is to be done, the price–or percentage, really–will probably have to be based on today’s reality, which is a very bleak outlook in the graphical online advertising business in which Yahoo plays most strongly.

That’s why dithering is a problem for this possible marriage, despite all the obvious complexity.

For one, it takes all the air out of any momentum such a combination could produce for either Yahoo or AOL, which will be much needed in the current economic environment.

In fact, such an econalypse is actually the perfect cover to try to pull this turnaround–and it is exactly that–off, given few investors or media will expect much from the merger for a while and be more forgiving.

In addition, the slash-and-burn integration needed to drastically refocus the new company–hopefully on three things only: advertising, content and communications–will be easier now more than later when the financial outlook improves.

“Things are going to get a lot worse than people think,” said one AOL exec. “So, this is a really good time for a reset and for cleaning things up.”

It is also easier now to bring in fresh ideas and new leadership to a combined Yahoo/AOL, as a new company will surely give many talented outside execs who have avoided both separately a reason to look again.

I could go on as to why this deal should move forward quickly, but here is one piece of great advice I got several years ago, from a well-known Internet entrepreneur whose company had just taken a big gamble by buying a controversial but fast-growing start-up in a key category.

At the time, many decried the move as too risky and too pricey and too thoughtlessly done. When I asked the exec about this, he did not argue, but offered this:

“No one really knows how anything is going to turn out, no matter how long they think it through,” he said. “But, I believe it will all work out if we execute well on the promise, because I did know one thing for sure: It was the right direction.”

And, indeed, while you can puzzle over a map endlessly, knowing the right direction to go in is the only thing one can be sure of in almost any circumstance in life.

Therefore, all Yahoo and AOL have to do is pick a path–whether it be to move on or merge–and just go.

By tomorrow would work for me.

In the meantime, below is a video I did of Yahoo’s Yang onstage at the Web 2.0 Summit in San Francisco last week, talking about the travails of the last year.

It includes him saying Microsoft should still buy Yahoo, which felt a little too much like a plea to me. (I happened to be sitting next to some Microsoft execs during the speech and they did not look too moved by the begging.)

But judge for yourself–here’s the video (yes, the Web 2.0 Summit organizers did flash a picture of a jar of Jif peanut butter as a joke–ha, ha, referring to the infamous Yahoo “Peanut Butter Manifesto”):

So–at this point–BoomTown feels it is not untoward in asking: What the heck is taking so long for Yahoo and AOL to decide whether or not to merge their struggling operations?

And, after talking to a dozen sources, inside and outside both companies, this week, I can tell you there is definitely one nagging problem: They’re just not that into each other.

“It’s like two people who are not really attracted to each other trying to get married,” said one source close to both companies. “But they also both desperately need a new story and have no other place to go, so they keep at it.”

Make no mistake, though, these arranged marriage negotiations are grudgingly advanced. Oh, they are talking, and how, now engaged in what another source describes as “very serious due diligence.”

Last week, for example, Yahoo (YHOO) and AOL execs had a series of long meetings in New York to discuss what the integration of the various overlapping units–content, advertising, email–might look like and to assess each other’s assets some more.

It was all organized by AOL President Ron Grant–although it is Time Warner M&A SVP guy Jim Burtson (pictured here) who is repping the media giant in the talks–who is more likely to be a player in a merged company than AOL CEO Randy Falco.

Cost savings are a prime motivator in the merger, including whether to have a single back-end system for a variety of products and services and what to eliminate or not.

“Bringing these two companies together is very operationally complex,” said one source close to AOL, which is a unit of Time Warner (TWX). “There are lots of issues to be resolved and you don’t want to wait to deal with them after a merger, because that is asking for disaster.”

For example, as was discussed, what should happen when a person types aol.com into a browser? Should it go to a Yahoo page, or perhaps the AOL sites should remain intact?

And what about the competing mail and communications systems? Yahoo favors its own products, not surprisingly, although its execs were particularly impressed by a presentation by former Bebo head Joanna Shields, who is now president of AOL People Networks, about how its various social-networking and communications assets like AIM will be knitted together in the future.

Left unsaid, although a major gorilla in room, was who would run the whole shebang. Yahoo, of course, is assuming that its execs will dominate, including CEO Jerry Yang and President Sue Decker.

But Time Warner execs, which will own a major stake in the new entity, are worried about the pair’s management abilities, given their recent record, and would prefer that a new leader is brought in to start with a clean and more invigorated slate.

“This is not just unloading AOL for us,” said one person close to Time Warner. “It is also an important strategic move for our future to get this right.”

For its part, Yahoo is still worried about weakening AOL assets, including its large, but low-margin ad network.

AOL’s performance, which has been lackluster in recent times, will be on display in a week when Time Warner announces its earnings on Nov. 5, and Yahoo is watching carefully.

The low price of Yahoo shares is also a problem, given the company would have to give up a big percentage of itself in a deal.

Today, the stock is dipping below $11.50. And it shows no signs of improving, tamped down by the weak economy’s impact on its display advertising business and a feeling that Yahoo management is unable to improve its fortunes.

That makes what percentage Time Warner would get for trading AOL a moving target.

Also worrisome is the still-pending situation with the Justice Department’s investigation into the much-maligned Yahoo-Google search advertising partnership.

Some kind of resolution is expected to be announced this week, a decision on which the Yahoo and AOL talks also hinge.

Most expect the deal to either be neutered significantly or even blocked by regulators. Either way, that’s not good for Yahoo, which is counting on the increased ad revenues from the arrangement.

If it is blocked, Yahoo will have to seek other alternatives.

Like, um, Microsoft (MSFT). According to sources, some members of Yahoo’s board have reached out to the company about renewing talks about a search deal, in case of a Justice Department lawsuit related to its Google deal.

Microsoft execs have also been to visit Time Warner recently. The reason: If Yahoo and AOL do manage to merge, the company will press regulators to not allow Google–which has a search deal with AOL–to continue to be so.

As to Google (GOOG)? It owns five percent of AOL and also has a major interest in what happens to both Yahoo and AOL.

In other words, it’s very, very complicated dance.

As has been copiously reported here and all over, Yahoo and AOL have been engaged in never-ending talks about a possible deal to merge their flagging Internet businesses.

Now, sources tell me, the circle of executives at both companies interfacing with each other has been widened, for purposes of due diligence.

That chit-chatting includes Yahoo CEO Jerry Yang, who has been in New York several times recently [UPDATE: But not yesterday, in a story I had previously linked to here]–where AOL parent, Time Warner, is located–to meet once with its CEO, Jeff Bewkes, and see if they can actually complete the merger.

Now, all this frantic activity does not mean a deal will necessarily be struck. In fact, in typical Yahoo style, it is going very slowly and that is never a good thing in dealmaking.

But it is this kind of ramped-up blabbery that has many at both companies predicting–hoping, really–that a deal will go through, sooner or later, as soon as Time Warner and Yahoo can agree on a price.

Or, more precisely, a percentage, since Yahoo’s stock price has been falling like a particularly sharp knife of late.

Sources said Yahoo does not want Time Warner (TWX) to have any more than 25 percent of the new company in a trade for AOL’s assets–although that figure would be slightly more if the media giant throws in some of that “Harry Potter”-generated cash into the deal kitty.

Yahoo (YHOO) management, sources said, also think its assets are of significantly better quality than AOL’s, and it still has that powerful–although declining–share in the lucrative search market.

Thus, it does not want to pay the $8 to $10 billion price Time Warner wants, and it should not either. (Here is a good analysis on the price issue by Silicon Alley Insider’s Henry Blodget.)

But Yahoo shares closed yesterday at a troubling $14.58, down 73 cents, or almost five percent.

That means its market valuation also declined by many billion dollars very quickly. It is now at $20.2 billion.

These profound stock drops, said several sources, could spur Yahoo to act before it gets even worse, which is why talks have been more frequent in recent weeks.

While not the best state of mind, panic is always a good motivator, and both companies are surely desperate to turbocharge themselves in the face of tough competition and avoidable management mishaps in recent years.

The hope? That together the pair can do better than they have separately–by combining their advertising, content and communications assets, which are among the largest in the world.

In addition, the “new” Yahoo would be able to make massive cost cuts, including layoffs, under the cover of integration and starting off with a clean slate.

So who would emerge more powerful in a new set-up–AOL or Yahoo?

Here’s a short cheat list:

Content:

AOL and Yahoo have a similar range of content assets, with big sites in all the classic categories, like news, financial, sports and lifestyles. Yahoo’s content head is Scott Moore, while AOL’s is Bill Wilson (both pictured here, left to right).

As I wrote yesterday, I expect that the more dominant Yahoo will rule, slashing and burning most of the AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And while former Microsoftie Moore is the likely head of this behemoth, don’t count on the very adept Wilson, who is known as a skilled corporate player at AOL, to stick around without a big role in this arena.

Communications:

Again, advantage Yahoo, which has bigger calendaring, email and instant messaging assets, an area once overwhelmingly dominated by AOL. That was then, of course.

Still, AOL’s communications tools are used by a huge audience worldwide and the pair together would be a powerhouse. So much so, in fact, that this might be the one major regulatory hurdle any deal would face.

Advertising:

Again, Yahoo would probably dominate, having just hired well-known former Microsoft exec Joanne Bradford to head up U.S. advertising sales. AOL’s top ad exec is Lynda Clarizio, a former lawyer who is considered dogged but much less experienced than Bradford. (Both are pictured here, right to left.)

And, Yahoo does have its search ad business, however weakening, and a stronger graphical ad business, even if the sector will be most under siege in the current down economy.

Plus, AOL’s Advertising.com, while a major ad network, is more of a business subject to bruising competition and squeezed margins.

Community:

Tapan Bhat (pictured here) now rules community at Yahoo, as well as its homepage, having just inherited it from the departing Brad Garlinghouse.

But AOL has a savvy and voluble exec in Joanna Shields, who came recently via its Bebo social-networking acquisition. While AOL woefully overpaid for Bebo and got played into thinking that other bidders were more interested than they actually were, it was Shields (pictured here) who essentially did that playing.

Sign her up for a top exec role in the combined company pronto!

In all seriousness, there is room for both in the newco, as both AOL and Yahoo seriously bite in the social-networking space. They will surely need a lot more than Bhat and Shields if they want to become true players in Web 2.0′s hottest and probably most important trend.

Engineering:

Yahoo. I do not need to explain this, do I?

Okay: AOL has always been incompetent in the technical arena, since its beginning days, compared with Silicon Valley companies like Yahoo.

All yours, Ash Patel!

Management:

Now, it is here that it gets interesting.

Most feel the push by Yang to do an AOL deal–and make no mistake, it is being pushed by him most of all–is due to increased pressure from his board, as well as major investors, who have had just about enough of his leadership.

“There is no way Jerry stays on as CEO in a newco,” said one source about Yang (pictured here). “He’ll be kicked upstairs as chairman, and I will think [President Sue] Decker will also have to go eventually, since there will be a lot of resistance if she is named CEO.”

But, said other sources, these major management changes will not happen immediately, if at all, as it is too distracting in the wake of a deal and ruins the positive “story” that both companies will surely want to spin.

And spin they will! (Go, Tricia! Go, Jill!)

And while he has a reputation for sharkish political skills, especially compared to Yahoo’s very diplomatic U.S. head, Hilary Schneider, expect AOL President Ron Grant to be an important part of the transition, since he is good–almost too good–at cutting costs.

Most expect his boss, AOL CEO Randy Falco, not to be part of the new company, thereby separating him and Grant, who are nicknamed “Smithers and Burns” at AOL, after “The Simpsons” creepy duo.

Most likely, there will be a search for a top-level CEO to take over the combined company–someone of the stature of New Corp.’s No. 2 Peter Chernin or eBay’s former leader Meg Whitman (except now, she is apparently Sen. John McCain’s pick for Treasury Secretary, if the Republican Presidential candidate were to win the election).

“If this has any chance of working out, the board has to push restart on the leadership,” said one person close to the situation, who notes that this deal is Yang’s last chance to truly impact the future of the company he co-founded and preserve its legacy. “Everyone gets that, even Jerry.”

But I think the idea that Yang would leave if there were to be a merger of Yahoo with AOL is wishful thinking on the part of his critics.

He appears tome to be very committed to seeing his vision of turning around Yahoo through.

And those who have counted him out always seem to be the ones who have been typically wrong, such as Microsoft CEO Steve Ballmer and shareholder activist Carl Icahn.

Because, for all the turmoil at Yahoo, it’s Yang still calling the shots.

Back in the first season of “Saturday Night Live,” one running catchphrase uttered by Chevy Chase would always crack the then-12-year-old BoomTown right up: “This breaking news just in: Generalissimo Francisco Franco is still dead.”

It’s that same kind of extreme déjà vu I feel with the continuing drip-drip-drip of the news-less news that Time Warner’s AOL and Yahoo are still talking about a merger.

Both Silicon Alley Insider’s (and soon-to-be AllThingsD.com blogger) Peter Kafka and I wrote extensively about the talks on in mid-September, noting that the discussions centered around merging AOL’s content, advertising and software assets with Yahoo (minus the access business).

There were the price issues–Yahoo wanted to pay between $6 and $8 billion, while Time Warner has long wanted $10 billion–as well as the worries about integration (East Coasties versus West Coasties) and email dominance monopoly problems.

As I wrote on Sept. 23, for example:

That support will be especially important if Yahoo tries to buy AOL, which it is again strongly considering as a way to bolster its ad business, international portfolio and email and content offerings.

Several sources I have spoken to recently have said that Yahoo leadership is very interested in doing such a deal, although not at the $10 billion price tag that Time Warner wants. (Think half and add a little more.)

In addition, there are some daunting regulatory and integration issues–AOL and Yahoo email and messaging combo would be a giant in the space, and the HQs of the companies are on opposite coasts.

But, the deal would give Yahoo some more experienced executives it needs and make it more attractive to others who might not consider going to Yahoo in its present state.

Yang had been pinging a lot of execs over the last year and has had little uptake.

But a stronger and more flexible Yahoo–i.e., it knows it has to change dramatically–would surely be more enticing, especially in a down economy.”

Now comes yet another story yesterday from TechCrunch that the talks are–wait for it–still on.

The story recounted similar details and added even older ideas from previously reported AOL-Yahoo talks (some multi-billion-dollar cash infusion from Time Warner, for example).

And, said TechCrunch, it could happen this month!

Good gracious–October is, like, a really long month. And, if not October, I guess November is good or maybe December. Hey, what about 2009?

Actually, what everyone really would like to know is what the heck is taking Time Warner (TWX) and Yahoo (YHOO) so long, hashing over the same issues (price mostly), especially if it is such a stellar idea?

And, with the economy crashing all around and Yahoo’s and Time Warner’s stock hitting five-year lows, one has to wonder what, exactly, the pair are waiting for?

A more fortuitous reading of the entrails? A sign from the heavens? Better winds?

Well, I hate to inform Time Warner CEO Jeff Bewkes and Yahoo CEO Jerry Yang, but the tide is not turning anytime soon, and both their companies are getting weaker by the minute.

I once called the pairing of AOL and Yahoo a little like leaning two drunks against each other to keep them from toppling over.

Looking back, I will admit that was a little harsh.

Given the stakes now, though–and especially if Yahoo has to abandon its controversial search ad outsourcing deal with Google (GOOG)–it makes sense to combine forces.

In the online ad space, for example, Yahoo and AOL mostly complement each other. The same is true in email and communications tools. And, while Bebo is not the prize Time Warner touted it as, despite paying a king’s ransom for it, Yahoo has no social-networking property.

The only area of true overlap is in content. Here, based on many sources, I would imagine if a deal is ever struck that Yahoo will slash and burn most of AOL-branded properties, keeping only interesting newer brands like sports blog FanHouse, celeb blog TMZ and the Engadget, Tuaw and JoyStiq tech blogs.

And, in fact, if the pair even gets its act together–this or next week would be great for us–it will give them the much-needed impetus to start making the massive cuts needed at both Web outfits for a long time now.

In that regard, look for an AOL exec like its President Ron Grant to be buttonholed to swing that particular ax.

Yahoo, with its less confrontational culture, has never been good at that kind of thing. For all its many flaws, it is a talent AOL will surely bring to the party.

If, of course, Yahoo and AOL ever manage to throw one before they become too much like Generalissimo Franco.

You know: Still dead.

AOL announced today that it has forked over the $850 million dollars in cash for Bebo–presumably in small bills in big bags, so all the fully vested Bebo employees can’t run away quite as fast–completing its acquisition of the quirky No. 3 social-networking site.

As part of the process, it has also created a new business unit, called the People Networks, which will be headed by Bebo President Joanna Shields.

Her new title is EVP at AOL and President of People Networks and Shields will be reporting to AOL President Ron Grant.

The People Networks will combine Bebo with AOL’s AIM, ICQ and other community platforms that AOL said reaches about 80 million users worldwide.

While the new moniker might sound as if AOL (TWX) has become a new Communist Party, the company has obviously placed high hopes in the division to make a lot of capitalistic dough.

More importantly, AOL has got to be betting that the new unit will finally bring its moribund community elements back to the vivacious life they all previously enjoyed.

Consider the slow death of AOL’s once-mighty “people” parts, which clearly dominated the scene early on in the online space.

Which company had some of the first truly usable groups online for the non-geek? AOL.

What company was a pioneer in bringing email to the masses? AOL, my friend!

Who created one of the first easy presence technologies called the Buddy List? AOL again!

And what company was smart enough early on to have two of the finest instant messaging systems ever created, with worldwide reach and upon which all others are inspired? Two guesses and the first two don’t count! AOL with its ICQ and AIM, of course!

BoomTown–who was there when AOL was actually the only true online service of the people, by the people and for the people–was also there to see it almost perish from this earth.

That’s because AOL did squat, as others simply usurped the core consumer concepts it commercialized first.

Let’s be honest, what is Facebook but a souped-up version of AOL? And couldn’t its AIM and ICQ really have been morphed into a more useful version of Twitter, Meebo and everyone else combined?

Still AOL’s Grant has dreams of renewed world domination! (It didn’t work out for Khrushchev, but thankfully Grant does not seem to be shoe-banging to make his point.)

“Unlike other social networks, which have had a difficult time monetizing their sites without jeopardizing the user experience, Bebo created an environment that enables advertisers, brands and media companies to engage in meaningful, relevant conversations with its users,” he said in a statement. “Combining Bebo with our other social media applications, our content sites, and Platform A gives us an unmatched opportunity to create value for these highly engaged audiences.”

Now, I really think Joanna Shields is a sharpie and I have repeatedly posted, well before anyone noticed, about Bebo’s innovative fare (see video below of my visit to Bebo’s London offices last year), including its clever melding of original online entertainment and social networking, such as its “KateModern.”

But I have to hope that Shields and AOL have some bigger plan in mind than simple combination and cross-marketing that is talked about in their press release.

(And, of course, getting a tiny bump from moving Bebo’s ad deal in the U.K and Ireland with Yahoo to AOL’s Platform A, as soon as the contract expires next year.)

Because AOL was the company that showed everyone the way communications, community, content and context could be utilized to unleash to yield enormous power for consumers.

And while it blew that first (and second and third) round, it probably still has to tools to take back some of the power it lost by organizing AOL workers and getting them to put some noble sweat into the effort.

Or, as Lenin once said: “Sometimes–history needs a push.”

Here’s my longish video of my visit to Bebo’s cool Carnaby Street offices in London last summer:

This morning, I am interviewing Steve Wadsworth, who helms Walt Disney’s (DIS) Internet businesses.

And after sating myself with as much Club Penguin info as possible, I will be sitting rapt in the front row, as folks like Yahoo’s (YHOO) Jeff Weiner, Bebo’s Joanna Shields and AOL’s (TWX) Ron Grant talk about how social media is going to finally make money.

BoomTown is on a vision quest to answer that question in the coming year, so we are kicking entrepreneurs and taking names!

Here’s a short video I did on the opening night, including talking to paidContent’s Staci Kramer and Seth Goldstein of Social Media.

But, first, it starts with a tour of my temporary L.A. abode at the home of Mahalo’s Jason Calacanis:

The motto: “I, for one, welcome our new AOL overlords.”

Why shouldn’t they? As BoomTown reported, every Bebo employee has had their previously granted stock options accelerated and fully vested under terms of the deal.

This is typical in acquisitions by the Time Warner (TWX) online subsidiary, since it cannot offer enough of its moribund old media stock.

Unfortunately, those kind of deal terms don’t make for the kind of environment that encourages already jumpy entrepreneurs to stay. In fact, it kind of gives them a free pass to leave.

Still, it is nice to see Bebo minions celebrating their new bosses, including AOL CEO Randy Falco and President Ron Grant, who helmed the Bebo deal.

But to clarify for Bebo staff: Falco and Grant’s nickname at AOL is Smithers and Burns, that lovable pair from “The Simpsons,” and not overlords.

It goes without saying that further errors like this will not be tolerated.

Last month, it was $850 million in cash for social-networking site Bebo.

And, today, it’s a much smaller slug for Sphere, which started as a blog search engine and morphed into a widely distributed “contextually relevant” content engine, used on news and blog sites across the Web (and which AllThingsD uses on this site, in fact).

While one source said the price was upward of $25 million, sources at other companies to whom the San Francisco-based start-up also talked, including Google (GOOG), said Sphere was looking for more than that.

In any case, the sale is surely a win for CEO and Co-Founder of Sphere Tony Conrad, a longtime entrepreneur who also has been a VC at True Ventures, which also invested in Sphere.

Oh, it’s a mosh pit of jolly interbreeding in the Web 2.0 start-up world!

Sphere raised about $4.25 million from many investors, some of which included Radar Partners, Trident Capital and well-known Web players Scott Kurnit and Will Hearst.

AOL has surely shown a knack for snapping up small and innovative properties with clever technologies–the Truveo video search engine and communications app maker Userplane, for example–and has let them stay relatively intact, as it has promised it will do with Sphere.

But it also has not exactly leveraged any of them in a massive way either and still faces the problem of holding onto talent from those start-ups, as BoomTown reported here.

One hopes that AOL can do more with the more complex and elegant Sphere, which has deep relationships with major publishers all over the Web, including many Time Warner properties like Time.com and CNN.

It would be a shame for Sphere to fall into one of AOL’s deep holes there.

But perhaps not, given all the frenetic multitasking activity at AOL of late, including yesterday, when it also announced a deal in which its Platform-A online ad division would sell ads for Verizon (VZ) on the Web and for its mobile units.

Oh, and its top execs, CEO Randy Falco and President Ron Grant, whom AOL sources tell me have been AWOL of late, have also been ferreting away on a possible deal to be the alternative for Yahoo (YHOO) in its takeover battle with Microsoft (MSFT).

While Yahoo troops are not really happy with such a union, as BoomTown reported here, neither are some top Time Warner execs at the possibility that AOL might simply be being used as a stalking horse by Yahoo, in an effort to get Microsoft to up its bid.

“Do you think they’re using us?” joked one Time Warner exec to me yesterday, given the deal activity seemed to have slowed down this week.

Um, yes, of course!

While that wouldn’t be sporting, if Yahoo does end up going to Microsoft, it just means AOL will need to get a lot more energetic and do a lot more Spheres in the future to keep up.