Armstrong was, in that moment, paying the cost of winning. For so long, it was a price he had never had to pay. Illustration by Mike Nudelman. Growing up, Tim Armstrong was the kind of kid who was always figuring out ways to make money. Like a lot of kids, he had jobs - including pumping gas and working construction. Unlike a lot of kids, Armstrong also started his own businesses. At first, Armstrong hired a few workers to pick all the ripe strawberries so he could sell them.
But then he had an idea. What if he just put out a sign out front that said 'you pick strawberries' and then charged people who stopped by? It worked. People drove up and paid him to do all the work. Back at school, Armstrong majored in economics and sociology. He was also a star athlete, rowing for the first-boat heavyweight crew and playing lacrosse. Socially, Armstrong was the well-liked popular kid who, as a sophomore, hung out with seniors.
One of those seniors, Jen Schumacher Harper, says Armstrong was "goofy and fun and the life of the party. That's the kind of nice thing people throughout Armstrong's life say about him. Even his detractors say you can't be in a room with him and not warm up to him.
He's got that Bill Clinton thing. Maybe it's Armstrong's height. Maybe it's his skill with eye contact. Maybe it's that Armstrong is a big, handsome guy with severe cheekbones and dark hair who looks like a Bond movie villain but turns out to be nice when he starts talking.
It makes you open up to him immediately and want to play on his team. After college, Armstrong moved to Boston and worked in finance. He hated it and quit. The people were not his kind of people, he says. To figure out what to do with his life, Armstrong started cold-calling prominent business executives. They wouldn't take his calls. Finally, an executive assistant took pity on him and gave him a clue: "The only way you'll get through is if you're a reporter, or if you know someone they know.
By the summer of , Armstrong was 24 and ready to work for a major company. Then he sold ads for a small Web publisher in Boston. But this was still the minor leagues.
So, Armstrong moved to Seattle and found a job selling advertising at a company called Starwave, which was owned by Microsoft co-founder Paul Allen. Says a former colleague: "At the risk of offending all the other people who were working as his peers, he was the star.
He was the guy who stood out from the beginning as having the focus, the intelligence, the charm, and the drive to make things happen. He was the kid that everyone loved.
Everyone had their eye on him and everyone said, 'I want him to be part of my team. Another reason Armstrong did well at Starwave was that he was a killer athlete.
At Starwave, that mattered. The company ran ESPN. Management thought that meant the staff had to know how to play sports.
Google Maps. So the staff was always training for something during lunch - mile relays, ultimate Frisbee tournaments, whatever. In each sport, Armstrong was always the best. Anything you want him to do, he can do. Armstrong, still in his early-mids, was one of the four. The brand advertising sales world is still dominated by TV. The Internet was still a tiny experiment that didn't move the needle. And yet, Armstrong quickly made a name for himself in New York. He did two things in particular that impressed colleagues.
That was a lot of money for Internet ads. Remember, Tim was 26, They let him into the club and it was pretty dramatic.
Suddenly, Armstrong was the guy at Disney who knew how to sell TV, plus Internet, plus magazine advertising to big brands. Next, Armstrong joined a news-and-games startup called Snowball. Snowball eventually failed. But before it did, Armstrong got a call from a friend who told him that the head of revenue at a Mountain View-based startup called Google was coming to New York and had asked for an introduction.
On the northeast corner of 86th Street and Columbus Avenue - the leafy heart of Manhattan's brownstone-rich Upper West Side - there is a red brick building. On the first floor there is a Starbucks with windows onto Columbus Avenue and 86th street.
If you were walking by those windows in the fall of or spring of , you could have seen a tall man in a suit sitting across the table from another man or woman. Between them, there would have been too many coffees for two people. The man in the suit would have been Tim Armstrong, interviewing a candidate for a position in Google's rapidly growing sales force. The reason for all the coffees was that Armstrong had struck a deal with the baristas. If they let him use the Starbucks as a conference room, he'd buy way too much coffee.
This Starbucks was a convenient location for Armstrong because his apartment was at the same intersection. For a while, that apartment doubled as Google's first office outside of its home base in Mountain View.
Armstrong had joined Google under the assumption that he'd move to California in a year. He never did. Instead, he stayed in New York and hired more than a thousand people. Armstrong obviously doesn't deserve all the credit for that growth. One reason Google grew into such a huge business is that Google ads are the most perfect ads that ever existed.
Consumers search for products, and the people who make those products pay Google to put ads next to the search results that come up. People in the industry look at those ads and say: How hard could it have been to sell those?
They sell themselves. Also, Armstrong's people weren't the only ones selling Google ads. The reason Sheryl Sandberg is the chief operating officer of Facebook is that she made a name for herself at Google building a large team of recent college graduates who helped local businesses buy Google ads for themselves.
But even if Armstrong doesn't deserve all the credit for Google's mind-boggling revenue growth, he does deserve some credit. Armstrong's biggest early challenge at Google was explaining to ad buyers what, exactly, he was selling. New York ad buyers didn't really think about text ads back then.
They were buying banners and "rich media. It was number 13 out of 13 search engines in traffic and tiny compared to Yahoo and AOL.
Meanwhile, the biggest fights Armstrong had to win in his early Google days weren't with ad buyers. These fights, he now says, were the "yelling matches at Google over ads and whether or not we were in the ads business. One battle was over head count. Armstrong hired that many. Then, after a year, he told Page and Brin he needed to hire more. Another big win for Armstrong was a Google product that put Google ads on other companies' web sites.
Along with a colleague named John Ferm, Armstrong came up with this idea. He hired an executive named Kurt Abrahamson to run the effort. Though much-evolved, this "network" business now accounts for billions of dollars of Google's revenues. By , Armstrong's Internet career had taken him from a star sales kid to a trusted startup manager to a world-famous business executive.
Steve Ballmer asked him to run Microsoft's online businesses. At the same time, Armstrong was dealing with a big management problem inside Google - the kind of problem that he would later face in spades at the helm of AOL. Armstrong had hired lots of people very quickly.
That hiring had helped Google to grow as fast as it did. But in the rush to hire fast, the sales organization in New York had become a mess. Armstrong had implemented what's called a "matrix" or "cross-functional" structure - one where people have more than one boss and work on different projects.
To grow much more, Armstrong realized, Google needed to re-organize its more-than one thousand sales people into a line-based reporting structure, where people worked in one group with one function and had one boss. One of those lieutenants remembers sitting in that room looking at Tim lecturing his team about "dithering" and thinking, "Tim, we've all said there are pluses and minuses.
Either way we're going to get some resistance. You need to make a call. Today, this source offers a theory as to why. And this theory gets to the heart of what is hard for Tim Armstrong and why he took so long to make similarly hard decisions at AOL. He knew deep down that it was the right thing to do, but he knew that there would be a lot of collateral damage in the course of doing that.
And the ones who would get damaged were friends of his. He made a commitment to different parts of that matrix organization, and damn it, he's not going to let them down. And even though we brought in McKinsey and they told us to unravel it and Tim bought into it as the right strategy, he couldn't get himself to do that because it would have been a breach of his personal loyalties. This was the first time Armstrong would struggle to make a call that he knew to be the right call because making the decision would force him to hurt lots of people who had believed in something he built from the ground up.
Bewkes had asked Armstrong if he would take the job. Though not yet 40, Armstrong was already sensing how short life was. He'd decided what remained of his life was his most valuable possession. Because of that, he didn't want to waste any more time at Google, where, as a non-engineer in a company run by engineers, he did not have any room left to grow. He figured that running AOL would be very difficult - the company had been in a desperate tailspin for more than 7 years.
But Armstrong also viewed AOL as an undervalued asset. It had a well-known brand, and though it was a top-5 company on the Internet, its valuation was far smaller than the top 4: Google, MSN, Yahoo, and Facebook. Closing that valuation gap even in the slightest would be a huge success.
Plus, AOL still had a very profitable Internet access business. Armstrong believed this business could provide the capital needed for the kind of big bets AOL would have to make to turn itself around. Armstrong already had a specific investment in mind - a local news startup he had co-founded called Patch.
Armstrong believed Patch could fill one of "the last white spaces on the Internet. Finally, Armstrong was in a position to take a risk with his career. At 38, his Google stock had already made him worth hundreds of millions of dollars. That money would not go away if AOL didn't work out. The elevator arrived. Armstrong stepped through the open doors. Later, he called Bewkes and took the job. So had And Really, it was hard to remember what a good year felt like.
It seemed like every Christmas season, there were layoffs. But then came broadband and there went the appeal of dial-up Internet access. Advertising dollars were supposed to replace those lost dollars, but by , even that business was collapsing. A former senior AOL executive remembers AOL prior to Armstrong as "an environment that felt very demoralized and somewhat abused, with the constant revolving door of leadership, at multiple levels not just at the CEO level, constant changes in strategy, and no apparent real plan for winning.
Then he flew to Dulles, Va. He met with his senior managers. Then the whole group walked out to a big tent where thousands of AOL employees were gathered in front of a stage.
Armstrong got on stage. He took a microphone. He shouted: "Are you guys committed to putting America back online? The day of AOL's spin-out. At the end of his tour, Armstrong hosted a dramatic meeting at the Time Warner Center where he revealed his plan for the company. At the front of the room, there were two whiteboards turned away from the audience.
On one, Armstrong said, were ideas that employees had for the future of the company. On the other, were Armstrong's ideas. He turned around the whiteboards. The ideas were the same. AOL, Armstrong decided, would be a media company powered by technology. It would, like Time Warner, Disney, and other traditional media companies, own multiple beloved content brands for the platforms of the future. He arranged its spin-out from AOL.
He hired a board of directors and orchestrated a massive employee buyout to reduce head count and cut costs. He re-designed the AOL. He signed a lucrative search deal with Google. He replaced his entire executive team, hiring former Google colleagues and other talented executives from big Web companies. Armstrong's snap firing turned into a massive story, creating a huge cloud over the already struggling Patch business.
Lipuma tried to rally his staff by telling them, " The way I see it, we can sit around and let our minds wander, or we can lean forward and make something happen. I know this team to be a 'make it happen' group. He also warns that unless Patch's sales staff start selling, they're going to be in trouble. Are you there? Here is the complete memo, via Romenesko :.
I realize that the news, last week, came as a surprise and caused each of you a high immediate level of anxiety. I am absolutely empathetic to that fact. When news like this happens, it can certainly set you back on your heels…I get that.
With that said, the only thing that really has changed, is your mindset and that is purely controllable by you. We heard Tim talk about changes coming this Friday.
Today is Tuesday. The way I see it, we can sit around and let our minds wander, or we can lean forward and make something happen. Over the last 5 sales days, we have amassed our worst results of the year. Again, I am sensitive to what must be going on inside of each of you. In the meantime you are losing your most important asset…an asset that expires and you cannot have it back…TIME! He took a microphone. He shouted: "Are you guys committed to putting America back online?
At the end of his tour, Armstrong hosted a dramatic meeting at the Time Warner Center where he revealed his plan for the company. At the front of the room, there were two whiteboards turned away from the audience. On one, Armstrong said, were ideas that employees had for the future of the company. On the other, were Armstrong's ideas. He turned around the whiteboards.
The ideas were the same. AOL, Armstrong decided, would be a media company powered by technology. It would, like Time Warner, Disney, and other traditional media companies, own multiple beloved content brands for the platforms of the future.
He arranged its spin-out from Time Warner. He hired a board of directors and orchestrated a massive employee buyout to reduce head count and cut costs. He re-designed the AOL. He signed a lucrative search deal with Google.
He replaced his entire executive team, hiring former Google colleagues and other talented executives from big Web companies. Not surprisingly, Armstrong also made missteps, gaffes, and strange decisions that reminded people that he was a rookie CEO.
For example, he arguably took too long to sharply reduce AOL's workforce, a mistake that led to a continuation of the rolling "death by a thousand cuts" layoffs that had so demoralized AOL's team over the prior decade. He also imported some management practices from Google that didn't even make sense at Google, much less at AOL. For example, as Google's founders had in Google's early years, Armstrong insisted on approving every hire AOL made and also showed a bias for hiring only graduates of top universities.
This practice ensured that Armstrong would be able to personally "vet" every new employee. But it also created a frustrating bottleneck and offended some of his senior team. Once, during a regular Monday morning review with top executives, one of Armstrong's lieutenants, the west coast product boss Jason Shellen, asked Armstrong if he could hire his temporary assistant full-time. Armstrong took a moment to review the assistant's resume.
Then Armstrong looked up and spoke at the speaker phone, through which Shellen was connected to the room. Before temping with AOL for the prior three months, Shellen's assistant had been a hostess at a chain fondue restaurant called the Melting Pot.
Armstrong said, "Why don't you just hire a Stanford grad? By then, Marques had gone on to become a senior executive at AOL. Shellen couldn't believe it. He said, "This is the most ridiculous thing I've ever heard.
She had done good work for three months. Eventually, after learning on the job, Armstrong ended this micro-management practice. Now he personally approves only hires of Senior Vice President and above. Armstrong hadn't quit Google to run an annuity.
During his first three years running AOL, Armstrong used the cash flow from AOL's rapidly declining, but still very profitable, dial-up business to make two huge bets. And he poured hundreds of millions into his local news startup, Patch. The Huffington Post deal was splashier. From an outside perspective, this deal and AOL's earlier, much smaller acquisition of tech news site TechCrunch, were Armstrong's first major financial commitments to building a multibrand media company — a new-age Disney.
But Armstrong had also come into AOL with a plan to spend hundreds of millions of dollars on a brand he believed would someday be as large as or larger than the Huffington Post: Patch. Armstrong had come up with the idea for Patch on a Saturday morning in He was driving to his home in Riverside, Conn. At a stoplight, he spotted a bunch of signs stuck into the ground advertising stuff to do around town. At home, Armstrong checked and couldn't find an online calendar listing local events.
Armstrong called the editor of the local paper and told him he should build such a product into the paper's website. Armstrong disagreed, and decided to start a company around local news and event listings for communities like his own. He called it Patch, and put Jon Brod in charge of it. Brod was a friend who had been running Armstrong's personal investment fund. After AOL spun out of Time Warner to become a public company in late , Armstrong had to convince the company's board of directors to allow him to invest heavily in Patch.
This wasn't hard because Armstrong had, with the help of executive recruiter Jim Citrin, just hand-picked AOL's board of directors. Everyone joining the board already knew what they were getting into. At one of his first board meetings, Armstrong told the assembled directors that Patch was "a huge opportunity," but that "it's not for the faint of heart. He wanted to make sure the board was comfortable with the big bet he planned to make.
This money went toward hiring people — lots of people. Armstrong gave Patch executives a simple direction: Blow this thing out. They did. By , AOL would set up more than Patch sites around the country. For a time, each site was operated by at least one editor. Hundreds more Patch employees sold ads. AOL chose locations for Patch sites using an algorithm that considered 59 variables from voter turnout to average income. Patch, importantly, was Armstrong's baby.
Patch had — and has — executives who believe in it, but they were there because Armstrong created the company and found a way to fund it. But that morning, Armstrong made a presentation to his lieutenants on plans to invest even more.
But AOL wasn't his. The timing was fortuitous. Shareholders were more likely to cheer that kind of aggressive investing if the company's core businesses were cranking. Minson had bad news: "June's fallen off a cliff.
After two strong months, this was disturbing news. It put into question the whole trajectory of the company — and, with it, Armstrong's strategy. Armstrong worried that the third quarter would also be a disaster and that shareholders would severely punish the company. He told Minson to warn shareholders that AOL's third quarter might not be as big as the company once thought. Minson did this during a conference call with analysts in July, when AOL reported its second quarter earnings.
Armstrong hoped that Wall Street would reward him for his caution. The rule of thumb was that you were supposed to underpromise and overdeliver. The plan didn't work. Shareholders abandoned AOL, furious that it had been investing so much in money-losing businesses like Patch and Huffington Post while the prospects of its core media businesses looked so weak. Analysts noted the share price made AOL's market capitalization so low that someone — maybe a larger company or a private equity fund — would have been able to buy AOL, get rid of all its businesses besides dial-up, and recoup the cost within a handful of years.
In other words, this was the perfect moment for an "activist shareholder" to step in and take over the company. And then get Armstrong and his team fired. Later that year, on the evening of his 41st birthday — Tuesday, Dec. As he reflected on the party, Armstrong felt like AOL was finally getting into good shape, three years after he took over.
So Armstrong was feeling good. Despite a rough few months that summer, had been a good year. In his inbox, he found a message forwarded by AOL's head of investor relations. The letter said that Starboard had acquired 4. The letter began friendly enough, with a "Dear Tim.
Shareholders are also clearly concerned about the Company's track record of capital allocation and how the Company will spend its cash resources going forward. The letter called for AOL's board — the only people who could tell Armstrong what to do — "to take immediate action to address the significant concerns highlighted in this letter. The letter ended with a request to meet with AOL management and its board of directors "to discuss our views on how to enhance value for AOL shareholders.
This wasn't a mere private letter Smith had sent Armstrong via Ryan; it was an open letter, sent to industry reporters around the country. This very public shaming from Starboard was the first head-butt in what would become a five-month fight for control over AOL.
Public companies, such as AOL, are owned by shareholders. Shareholders control companies through elections. Every year, shareholders vote to decide who should be on the company's board of directors. The main job of these directors is to hire and fire the CEO, as well as give advice and consent on major decisions facing the company. By announcing it had taken a 4. If Starboard were to act on that threat, it would be the start of what's called a "proxy war" — a reference to the proxy forms shareholders fill out when they vote for directors.
Starboard's Jeff Smith is what's called "an activist shareholder. He buys a stake in the undervalued, mismanaged company and then shouts until management takes his advice or gets replaced. Smith profits when the once-mismanaged company's value rises under better management. Given the accusations of mismanagement in its letter, such a board would certainly toss out Armstrong's plan for the company — starting with Patch.
If, over the next few months, Armstrong had any doubt about how much damage an activist shareholder could do to the career of a CEO, all he had to do was watch what was happening to Yahoo.
In August , a hedge fund manager named Dan Loeb had announced a large stake in Yahoo and demanded representation on its board. On the call that day with his directors, Armstrong reminded them that most companies dealing with activist shareholders like Starboard's try to settle.
Usually that means giving the activist a board seat and modifying the company's strategy. This was something Armstrong did not want to do. But he didn't tell board members that. In fact, he did not indicate one way or another whether he thought AOL should fight Starboard or begin negotiating. He just laid out the facts. This was a prudent tactic.
At that time, almost all of AOL's board members thought it might be better to try to negotiate a settlement. They were sensitive to the notion that legally they owed their loyalty not to the CEO who had gotten them their board seats, but to AOL shareholders. And so far, Smith seemed to be making a strong case for splitting up AOL. One board member, however, did not want to appease Smith: Fredric Reynolds, the former chief financial officer of CBS.
Tim Armstrong is the chairman of AOL's board, and he sets the agenda for all its meetings. But after Armstrong, Reynolds was the board's leader — an almost-chairman. From the beginning of AOL's fight with Starboard, Reynolds insisted that his fellow directors back Armstrong to the end.
Before deciding one way or another, the board agreed that Armstrong should meet with Smith and see what his vision for AOL actually was. Smith had a Starboard colleague, Peter Feld, and another analyst with him. Smith is skinny with dark, curly hair.
He has a long nose, and when he talks he leans his head slightly back to see over it. Feld is thicker in the shoulders and at the collar, with glasses. Armstrong stood up and walked to the far wall of the room, which was one giant whiteboard. Armstrong said he would walk Smith through AOL's strategy. He began a long speech in his deep monotone. He started drawing on the whiteboard. As Armstrong talked, Smith waited for him to address Starboard's basic concern with AOL: its irrational investments in original content overall, and in Patch in particular.
AOL's mistake, he believed, was trying to make money by creating content for that page. He thought AOL would be better off trading traffic for content from other publishers. But more than any other of Armstrong's decisions, it was his massive investment in Patch that most perplexed Smith. He and his team had done the math, and they couldn't figure out how Patch was ever going to be profitable. They had counted all the ads available for sale on Patch and multiplied that number by the rates AOL was charging.
The number still fell short of the amount it cost AOL to employ Patch's 1,plus-person workforce. And that was assuming Patch was selling all its ads. He didn't think that number was going to climb higher, mainly because Patch sold ads to local businesses on a flat monthly basis.
The price for most online ads is determined by how often they are viewed or clicked-on. Judged by those metrics, the flat rate AOL was charging for Patch ads was insanely high. Smith believed any sophisticated small-to-medium business would never go for AOL's rate. He wondered why Reynolds and his directors hadn't done the same math as he had on Patch.
Many minutes later, Armstrong was still at the whiteboard, using almost the whole thing to lay out his strategy. AOL's red-headed senior vice president for investment relations, Eoin Ryan, looked across the table at Smith. From Smith's body language, he saw that Smith wasn't getting what Armstrong was saying.
Ryan thought maybe because Smith and Feld had backgrounds in finance, some of Armstrong's vision for AOL as a product for consumers was going over their heads. It was true that Smith and Feld were befuddled — but they were mostly alarmed. As an activist investor, Smith has to meet with management teams all the time.
For him, it's obvious when they know how their core businesses fit together with the businesses they are trying to grow and develop. Presumably, those who were about to be fired got a dial-in number to the room with the other doomed employees.
This week, in a memo to all AOL members, Armstrong apologized , calling the firing an emotional mistake. Although about Patch employees were fired today, the AP reports another could be fired soon.
For you. World globe An icon of the world globe, indicating different international options. Get the Insider App.
0コメント