A kind tipster sends the following memo, said to be AOL CEO Randy Falco’s year-end missive to remaining AOLers.
No real news. Frank acknowledgment of state of AOL a year ago. Congratulations on jobs well done. Quick acknowledgment of vast firings. Recitation of some encouraging facts about Unique Visitors and Page Views. Passing mention of teammate Ron Grant, who a few months ago was perhaps the most loathed person in the company. Outline of what’s coming in 2008.
Highlights and full memo below.
Randy on pre-Randy AOL: What I found when I arrived was a company with many strengths and a rich heritage, but one that still needed a lot of work to complete the transformation from a subscription business to an advertising business. Frankly, there was more to do than I had expected — and much of it had to be done quickly. Page views were in rapid decline. Many of our key products were one, two or more generations behind our competitors and were underinvested. We had not focused on a meaningful international strategy. Our advertising business needed additional investment. And we still had a ways to go to make sure our cost structure and our organisation were properly aligned to support our future as an ad-supported Web business.
Encouraging Recent User Trends: AOL News Unique Visitors are up 8% for the year and Page Views are up 11%; Sports UVs are up 4% and PVs up 11%; Money & Finance PVs are up 22%; AOL Body UVs are up more than 25% and PVs up more than 50%.
Randy Falco: A Review of Our Accomplishments in 2007
Dear AOL colleagues,
Over the past couple months, I’ve had the opportunity to talk with many of you in small groups. I shared my take on what AOL has accomplished over the past year, talked about my vision for the company, and answered as many questions as time permitted. And I’m pleased by the positive feedback I’ve received from these meetings.
So as we come to the close of 2007, I want to share what we discussed in these meetings with everyone in the company. I hope it will help everyone at AOL be better informed about the tremendous progress we’ve made this year, and help us better understand what AOL is today as a company, and where we’re headed.
It’s been just over a year since I came to AOL. And what I found when I arrived was a company with many strengths and a rich heritage, but one that still needed a lot of work to complete the transformation from a subscription business to an advertising business.
Frankly, there was more to do than I had expected — and much of it had to be done quickly. Page views were in rapid decline. Many of our key products were one, two or more generations behind our competitors and were underinvested. We had not focused on a meaningful international strategy. Our advertising business needed additional investment. And we still had a ways to go to make sure our cost structure and our organisation were properly aligned to support our future as an ad-supported Web business.
In other words, while AOL had previously announced a new strategy of being an ad-supported Web company, we still hadn’t fully embraced it.
To do so, I felt we needed to execute against four pillars to rebuild AOL for the future. (You can see the pillars depicted nearby.) I felt that if we could do that, we had an opportunity to be successful in a big way.
So let me spend some time highlighting our progress, pillar by pillar.
Product and Programming Leadership
One of the most important and most challenging assignments we faced was to reintroduce, refresh, reinvigorate all our products and all our programming and commerce verticals, and untangle our publishing systems.
The teams responsible delivered. By year end, we’ll have reintroduced and reinvigorated more than 80 products. It’s an enormous job, and they’ve done a great job, because those products have actually been very well received by influencers in the market. We made significant progress upgrading our existing product line-up – such as AIM, AOL Mail, AOL Video, MapQuest, Winamp, mobile and many others – and launched breakthrough new products like BlueString and Mgnet. We’re also unbundling our products and opening them up, so that consumers can use them wherever they are on the Web. (You can see the entire list of 2007 product achievements, along with some select quotes from reviewers, here.)
At the same time, we’ve refreshed most of our programming channels. They look terrific. If you haven’t seen them, you owe it to yourself to check them out. We’re doing a lot more than just giving these pages a new look. They are also more useful, more interactive, and better performing and they’re attracting praise and attention from critics and, more importantly, our users. Some examples: AOL News UVs are up 8% for the year and PVs are up 11%; Sports UVs are up 4% and PVs up 11%; Money & Finance PVs are up 22%; AOL Body UVs are up more than 25% and PVs up more than 50%. The list goes on. (The complete programming list, along with the notable metrics, is here.)
We also reclaimed and relaunched key commerce sites including Autos, Real Estate and Shopping. Before, we’d outsourced entire verticals to third party partners, which made sense in our subscription days, but was preventing us from being able to effectively monetise key categories under our new ad-supported business model. MapQuest also continued to improve the service it provides its 50+ million monthly users.
We also made improvements to our core infrastructure, such as replacing the antiquated “Big Bowl” publishing system with the DynaPub content publishing platform that lets us improve page load times, create dynamic content, and streamline page development.
Search was another area of focus in 2007 – and with strong results. At the start of the year, everything was trending downward on AOL Search – UVs, queries per UV, load times. The changes we implemented mid-year have largely turned these trends around. AOL Search is now the single biggest recirculation engine of relevant, engaged traffic to AOL programming channels. I cannot underscore enough the importance of this accomplishment.
In short, the products, programming and technology teams did an outstanding job under a lot of pressure. And we should feel good about that. It doesn’t mean that we’re done. I don’t think you’re ever done with products and programming, but I have to say that that’s one of the big jobs that was done really well in this company this year.
The Access team also did great work this year – particularly on their efforts to migrate paid members to free AOL. When we first got here, our conversion rate from paid to free was in the 40% range – today it’s over 80%. That’s a remarkable achievement and these free users have been a key component in our efforts to stabilise our page views.
On the international front, we started out the year as essentially a start-up business. We had a lot of people working overseas, but they weren’t really tied into any organisation.
So as a starting point, we created an international team and headquartered it in Bangalore, India. We also finalised the sale of our Access businesses in the UK, France and Germany, completing the transformation to an ad-supported business in Europe.
We also globalized our product development efforts. We put in place an aggressive portal launch plan and went from four portals around the world in January to 14 portals today. By the end of next year, we will have a presence in a total of 30 countries. In addition, Truveo launched localised versions of its industry leading video search in 16 key markets. That’s remarkable progress.
It was also clear to me that if we wanted to be a global business we needed a strong distribution partner. That’s where the HP deal came in. With this agreement, localised versions of the AOL portal, toolbar and search will be set as the defaults on millions of HP computers sold around the world. In fact, we’ve already launched a co-branded HP portal in Canada and the UK, with France and Germany launches expected before the end of the month.
It’s important to note that we had to win this HP deal. They didn’t hand it to us because we were good guys with a big paycheck. We actually won it over MSN, Yahoo and Google. And the only reason we could have won it, which ties back to the first pillar, is that we had great products.
So while I would still characterise this pillar as a work in progress, I think we’re actually in the international game now. And there’s an enormous amount of upside for AOL outside the U.S.
Global Advertising Platform
The third pillar is around advertising. When I came here, I was very excited about the fact that we had Advertising.com. One of the main things you need when you’re in the advertising business is reach. And Advertising.com has 89% reach on the Web – that’s what you get when you add up the audience Ad.com has across the thousands of third-party websites with which it does business.
That alone is broader than any of our competitors. And when you combine Ad.com with AOL’s owned and operated network and the TACODA third-party network, our ad network reaches more than 9 in 10 Web users in the U.S. That’s an enormous competitive advantage – and a sustainable one that we have to take more advantage of.
But, we needed to improve our ability to serve advertisers across the Web, as audiences began to fragment. There are more than 65 million active Web sites right now – and growing fast. To me, those are 65 million potential competitors. They’re competing with us for audience and to some extent for advertiser dollars.
That’s why we invested so heavily in advertising this year and launched Platform-A. This year alone, we acquired TACODA, AdTech, Third Screen Media and Quigo, giving us state-of-the-art behavioural and contextual targeting, a world-class ad serving company, and access to the increasingly important mobile platform. In all, we spent about $800 million on investments.
I should also point out that we made smart and economical acquisitions. In fact, our competitors spent far more to acquire assets similar to those of AOL – like Microsoft’s $6 billion acquisition of aQuantive, Google’s $3 billion bid for DoubleClick and Yahoo’s more than $1 billion investment to purchase Blue Lithium and the remaining stake in Right Media.
The easiest thing and the best thing you can do for advertisers and agencies today is make life easy for them. And Platform-A lets us do that. It’ll give them the most extensive reach of any advertising network on the Web. It’ll give them in-depth analytics. It’ll give them superior targeting. It’ll give them great information about their customers. And ultimately, which is what everybody wants, it’ll give them a solid ROI.
The final pillar is the most difficult one. But it’s also the most necessary one. This isn’t cost management with an eye toward always cutting costs and laying off people. Those are difficult, painful things that nobody enjoys doing. It’s more about resource allocation. It’s about being smart about your business. It’s about being outwardly focused and understanding where the growth opportunities are.
That’s why we invested so much in Platform-A, because we believe there is a greater return in that side of the business. That’s why we invested more in our products. That’s why we discontinued a number of products that we didn’t think had a big future (such as OpenRide and AIM Phoneline), stopped efforts on more than a dozen others, shuttered some programming areas that weren’t performing, including several blogs, and sold off Tegic, which wasn’t part of our core focus in mobile, among other streamlining efforts this year.
So as we wrap up 2007, I feel really good about where we are.
We still have a lot more work to do, specifically around process improvement, and I’m committed to making progress on this issue next year.
We also need to make sure that everyone at AOL understands our strategy, our mission and our focus as a company. We’re fundamentally changing AOL’s business. We aren’t a subscription business anymore. We are an ad-supported Web company. That requires new skills, new ways of thinking, new approaches. And Ron and I will continue to meet in small groups next year to talk through these issues and to hear from you.
In addition, we’re going to take a closer look at the AOL brand and what it stands for in the market. That doesn’t mean we’re going to demote the AOL brand or get rid of it. Hardly. AOL still has great resonance in the market. What it does mean is that we’re going to figure out what AOL’s strengths are as a brand, while at the same time building and creating new brands to serve specific audiences. We already do this well, as evidenced by the success of MapQuest, Moviefone, AIM, BlueString, and many other thriving non-AOL brands.
My view is that this approach positions AOL better than our competitors for where the Web is going.
The important thing for us to realise is that on the Web today what matters isn’t so much that the AOL brand is on a product or a programming channel, but that we create great products and programming. These become the brand. We saw that first hand with the success of TMZ.com.
Another point of focus in 2008 is going to be embracing the overarching principal of relevance. Everything we do going forward – whether it’s a new product, a new programming experience, new advertising tools – needs to be done with an eye toward making it sure it’s relevant to our consumers and our advertising partners. Relevance is key. Without it, we can’t expect to meet our goals.
When I first got here, I said I want AOL to be great again. With 2007 rapidly coming to a close, I can tell you we are on our way – we’ve made great progress this year and we’ve put AOL in a good position for 2008. I’m looking forward to working with all of you in the months ahead as we move our business forward. And on behalf of Ron, myself and our management team, thank you so much for your hard work and commitment.
Best wishes for a safe and happy holiday.
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