AOL Platform-A's shaky start

The Baltimore Sun

AOL, the company that introduced millions of people to the Internet, has tried to reinvent itself many times. The latest effort - like those before it - doesn't seem to be going very well.

On Tuesday, Jeffrey L. Bewkes, president and chief executive of Time Warner Inc., AOL's parent company, acknowledged weakness in the business and said he was open to combining AOL with another company - "whatever configuration makes it the strongest and the most valuable."

But he may have been soft-pedaling what seems to be an increasingly troublesome situation at AOL, which has bet its future on a new strategy of selling advertising across the Internet and spent more than $1 billion on related acquisitions.

On Monday, the third of four top executives put in place last summer to run the new advertising division, known as Platform-A, left the company. That executive, Curtis G. Viebranz, was fired and replaced by Lynda M. Clarizio, who had been running AOL's Baltimore-based Advertising.com unit while battling Viebranz's strategy.

Several recently departed executives contacted this week described the climate at AOL as acrimonious. They described confrontational employee meetings, including one at Advertising.com headquarters in Locust Point, as well as screaming matches in private offices as senior executives worried about making their aggressive quarterly ad sales goals.

Revenue flat

Bewkes acknowledged Tuesday that revenue at AOL would be flat for at least another quarter.

AOL still enjoys many advantages that most companies can only dream about, from a prestigious brand name to an enormous revenue stream ($5.2 billion in 2007, down 33 percent from 2006).

AOL's Web sites attract 112 million visitors a month, and 9.3 million Americans still pay the company for Internet services. But these days, no Internet portal can succeed without a thriving advertising business, and that is where AOL is trying to shore itself up.

The goal is to expand AOL's advertising networks, which sell ads on thousands of Web sites, by knitting together the seven advertising and technology companies that AOL has purchased and rolled into Platform-A. Until recently these fiefdoms have continued to operate separately - in some cases, fiercely so.

"We were ahead of the curve in the creation of Platform-A and remain in a great position to compete in this intensely competitive marketplace," said Randy Falco, chairman and chief executive of AOL. "Our No. 1 priority is consolidating and integrating Platform-A to make it easier for marketers to harness the full power of digital media to solve their marketing problems."

If there is one thing that AOL executives do agree on, it is that the future of their business lies in advertising revenue.

AOL's overall revenues have declined as it has lost dial-up access subscribers. Its advertising revenues were $2.2 billion in 2007, up 18 percent over the previous year, but the pace of ad revenue growth has slowed each quarter, even as AOL bought companies such as the ad network Tacoda.

Advertisers say the company has fallen into a pattern of making frantic phone calls at the end of each quarter to offer last-minute price cuts on its ads, if only the client will buy more.

"The supply of advertising has increased so dramatically, I do think that it is putting pressure on the pricing in the industry," said Clarizio, who was named president of Platform-A Monday. "How couldn't it?"

Clarizio told AOL's many ad sales teams Tuesday that they would be merged into one force. About 1,600 people work for Platform-A in a variety of roles, including technology development and ad sales; Clarizio declined to say if there would be any layoffs.

Morale may be an issue for some time. In November, after AOL laid off 2,000 employees, Falco and Ronald Grant, AOL's chief operating officer, traveled among the company's offices and met with employees. At Advertising.com's headquarters, the session grew heated when employees said they did not want to be forced to sell ads to low-end advertisers, as AOL's leadership seemed to be pushing them to do.

Clarizio, described by her colleagues as a "mother hen" to Advertising.com, said she forcefully argued for the view of her sales staff.

Schism

Soon afterward, Dave Morgan, a founder of Tacoda who had stayed on at AOL after selling his company to it, tried to persuade Time Warner to sell Advertising.com, according to one senior AOL executive who was granted anonymity in order to disclose details about internal matters. Morgan is one of the three top-tier advertising executives who has recently left AOL.

Clarizio had opposed the Tacoda acquisition, the senior executive said. The leadership of other companies that AOL had acquired - like the ad network Quigo - had chosen not to join AOL, so by the end of last year, a schism had emerged between the people who came to AOL from Advertising.com and those who came from Tacoda.

This week, AOL's leadership decided to change course. Falco said in an interview that he fired Viebranz because he had not moved quickly enough to integrate AOL's many acquisitions and to energize the company's sales force.

"What is important to me is to have somebody in that job integrate and bring together Platform-A," Falco said. "I need somebody to do it fast enough. The marketplace was not going to wait for us."

Viebranz declined to comment.

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