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AOL sees $20bn opportunity in quality gap on Web

Abu Dhabi, March 10, 2010

Newly independent Internet company AOL is selectively hiring journalists and engineers after cutting a third of its workforce as it tries to reshape itself as a leading provider of quality Web content.

AOL, which was spun off from Time Warner in December - nine years after one of the most disastrous corporate mergers in history - is deep in the middle of a turnaround under its new chief executive, Tim Armstrong.

Its current market value is about $2.7 billion. When its plan to merge with Time Warner was announced in January 2000, AOL was valued at $163 billion.

Armstrong, a former Google executive, told Reuters on Wednesday AOL aimed to close the gap between fast-growing methods of distribution on the Web including search and social networks, and media content created for a previous era.

'In reality, the distribution's bigger than the content now. Quality hasn't caught up,' he said in an interview at the Abu Dhabi Media Summit, adding that there was a huge opportunity to attract advertising to sites publishing quality content.

'I believe there's about a $20 billion gap between where advertising is and where customers are.'

AOL, a pioneer of the early Internet that is slowly leaving behind its roots in dial-up access, employs about 500 journalists and has another 3,500 working for it freelance or on retainer - of a total of about 5,000 staff after the cuts.

Armstrong said the workforce of the company he inherited was skewed towards technicians as it grappled with dozens of legacy publishing and advertising platforms, and his first priority was to hone and simplify that technology.

In order to focus on that, AOL has cut its presence in some markets outside the United States. 'We pulled back from international to get the plumbing straightened out,' he said, adding that AOL would eventually expand abroad again.

With the help of better technology, AOL aims to build an improved platform for brand advertising. To date, most of the explosive growth in online advertising has been in search advertising, which matches ads to users' queries.

Armstrong declined to give details of the new platform, but said it would be different from the competition.

Google leads the search-advertising market and Yahoo is ahead in online display ads, most often used for brand campaigns.

'We will make announcements in 2010,' he said.

Armstrong also said AOL's Web services business would make significant profits in years to come, as the dial-up business continues to dwindle. AOL also offers Internet access-related services such as security and backup.

'I would like to have double-digit margins,' he said.

AOL made a net profit of $1.4 million in the fourth quarter, compared with a loss of $1.9 billion a year earlier when Time Warner wrote down its value by $2.2 billion.

Armstrong, who has recruited several executives from his former employer since joining AOL, said he planned more management changes.

'I'm not in a position to say all the management changes are done,' he said.-Reuters




Tags: media | Internet | Time Warner | AOL | publishing | Online content |

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