Tim Armstrong Pitches AOL At The UBS Conference

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AOL CEO Tim Armstrong is participating in a keynote Q&A at the UBS 37th Annual Global Media and Communications Conference today.

It’s a big day for Tim, as AOL spins off from Time Warner (TWX) today.

We’re took live notes. Here’s what we learned:

  • AOL’s new content management system, Seed.com, launched at 10PM last night.  AOL has 3,500 content producers now. The new CMS will let them to scale “tens of thousands.” It’ll distribute to Facebook and Twitter.
  • Tim says the minority of AOL traffic now comes from our access business and that he expects that trend to continue.
  • Tim says there’s a new ad platform that’s in beta. It’ll be open to all ad customers who want to use credit cards. It’ll be up-and-running sometime in 2010.
  • AOL’s search deal with Google is up December 19, 2010. It’s considering all partners.
  • AOL won’t remove all its own inventory from Ad.com, but Tim wants to charge more for our premium inventory; he wants to charge “Super Bowl prices” for “Super Bowl content.”
  • Even amidst layoffs, AOL is hiring engineers. “We’re doing very heavy engineering recruiting right now. Anybody in this room who has relatives in engineering should send them to us. We will make them very happy.”

AOL will not spend any of its ISP cash on “Hail Marys.”

Here are the notes. Anything not in quotes is a paraphrase.

12:26 — Tim: “This is the end of the road show. I got the perception from investors that AOL is challenged.”

12:27 — “What got me out of my chair at Google” is AOL’s brand. Going was a “tough” decision, but given what the Internet will do in the next decade, the right decision.

12:29 — Tim talks about how he and employees locked down on AOL’s strategy on July 24th —  content, ads, and communications.

12:30 — Why is this different than all the AOL turnarounds that failed in the past? Tim: We’re “maniacle” about the “piping,” which AOL hadn’t been in the past. He talks about how AOL had 17 different ad systems before.

12:32 — How is AOL’s content strategy different than Yahoo’s or Demand Media’s?

12:31 — Tim: Our new content management system, Seed.com, launched at 10PM last night.  Its one global system. It uses a lot of data. We’re at 3,500 content producers now. It’ll let us to scale “tens of thousands.” It’ll distribute to Facebook and Twitter. We’re different because of our huge audience and our big ad systems.

12:34 — Give us some examples of properties that will develop this strategy.

12:34 — Tim: We’re produces 6X the video we used to. We’re going to go to 100 media properties. We’re producing 80% of our own content.

12:36 — How do you scale these sites? How do you market the content?

12:36 — Tim: A lot of people say our traffic comes from access. The minority of our traffic now comes from our access business. We expect that trend to continue. We have made a big effort to partner with people, give them content for traffic. We’ve made our sites more shareable on the Internet, as opposed to our old walled-garden approach. Our distribution costs are not hundreds of millions of dollars on marketing, but creating very rich deep content that people will like.

12:38 — How do you fix AOL advertising?

12:38 — There’s been a pricing/yield problem at AOL due to us selling our premium inventory on Ad.com. Tim also talks about how shocked he was when he joined to discover that AOL didn’t have hundreds of thousands of advertisers like Yahoo and Google does. Tim also says there’s a new mid-tier sales force. Tim says there’s a new ad platform that’s in beta. It’ll be open to all ad customers who want to use credit cards. It’ll be up-and-running sometime in 2010.

12:41 — Is search a battle you want to even fight?

12:41 — Tim: We are not in the search business. The Google deal is up December 19, 2010. You can expect us in the next iteration to continue talking to our current partner, there are other people who will help us. We are spending time figuring out what we want from the next deal. The last time AOL went purely for money. That’s had drawbacks bad user experience, bad advertiser experience. It’s a more competitive marketplace for search deals than it was the last time AOL cut a search deal.

12:43 — Tim: We may trade search dollars for brand dollars by putting one-boxes inside search results driving traffic to our media sites. In the past, AOL focused too much on immediate revenue gains.

12:45 — Where will you invest?

12:44 — Tim: Expect us to invest in content, local and overall. Will this take massive amounts of acquisitions? No, there’s a lot of low-hanging fruit. The biggest investment you’re going to see is internal. You’ll see us taking assets out of the company that don’t fit our strategy. Expect nominally big investments on content and technology.

12:45 — Tim asks the interviewer if Carol Bartz swore on stage yesterday. The interviewer says no.

12:45 — Tim talks about his vision for local news. The entire town logs on in the morning. We’re in 17 test markets. We’ll be in 30. We’ll be in hundreds. This is a risk its a bet, but we’re ahead of plan in traffic and revenue.

12:49 — Tim: The company went on an edge with Platform-A and told advertisers they could get more with less and crunch our margins. This was a mistake.  The accesss business has always been run very tightly. We want to bring that discipline to the advertising business.

12:51 — At what point will the ad business be profitable?

12:51 — Tim: Not in 2010, hopefully before 5 years from now. I traded a lot of my Google options for AOL options, so I take this very seriously.

12:52 — Will you remove your premium inventory from Ad.com?

12:52 — Tim: Ad.com is very important. We will keep inventory in it. We want to charge more for our premium inventory — we want to charge “Super Bowl prices” for “Super Bowl content.”

12:54 — How much traffic comes form acceess?

12:54 — Tim: Well under 20% of uniques. Pageviews are a typically more because they use communications. The press says its 70% or more. (No we don’t.)

12:55 — What’s the plan for mobile?

12:55 — Tim: We are building mobile advertising into our singular ad platform. We won’t chase mobile ad dollars in 2010. We’ll chase mobile users. Maybe we’ll go to advertisers in 2011.

12:56 — How fast will the ISP business decline?

12:57 — The decline is moderating. There’s a chance it could go on for years.

12:57 — The audience gets to ask questions.

12:57 — An audience member asks: “Did you say AOL advertising isn’t profitable?”

12:58 — Tim: Ah, yeah. Profitability isn’t so much there right now. I could shift allocations around and tell you it was, but you “can think of it as marginally profitable.” We don’t spend a lot of time beating our chest saying its profitable.

12:58 — If you reprice your premium inventory, how much will it grow?

12:59 — Tim: “It’s not single digits. It’s larger than 5%.”

12:59 — Tim asnwers a follow-up about margins: We would be disappointed if we didn’t move our margins up a lot.

1:00 — What role does communications play?

1:00 — Tim: We have tens of millions there. Two of the biggest IMs, AIM and ICQ. Email is still a growth market. 17 or 18 million accounts. Brad Garlinghouse is very focused on it. Two missions: Cleaning up the current products and services. AIM and Bebo got jammed together. That was a mistake. The ads business also needs cleanup. They put more and more ad units on every page. The first day I logged on to AOL Mail, I got 15 or 20 ads. We have an email clean-up going on. It’s product hygeine. We see integrated messaging. People don’t want to carry around 15 different devices and log in 15 different places.

1:05 — How’s hiring been?

1:06 — Tim: People in the company told me we couldn’t build certain products because we didn’t have the right people. The engineering community is now looking at us as a big hairy problem where their work will effect hundreds of millions of people. AOL is a big, solvable problem and engineers love to solve problems. “We’re doing very heavy engineering recruiting right now. Anybody in this room who has relatives in engineering should send them to us. We will make them very happy.”

1:08 — How’s the brand turnaround going?

1:08 — Disney is the goal. Tomorrow we’re running a program with Target to give AOL users 50% off on a lot of toys as a thank you. Consumers care about us. The business brand is damaged.

1:10 — Are you going to sell MapQuest?

1:10 — Look for a partnership. It’s a very valuable brand.

1:11 — What metrics should investors look for as measures of success? And in what time-frame?

1:11 — Tim: Expect us to outside of divestitures, have growth of unique visitors. Growth in domestic display business in 2010. Long term, we want AOL to be a cash generating business. We’re focused on getting the Web business to throw-off cash. For 2010, I would hope we have life signs in the domestic display business. Life-signs in the reversal of down traffic. Life-signs of heading toward profitability.

1:13 — If you’re going to plow access cash back into media business, how should we value that cash? And what are your metrics to measure ROI on those investments?

1:13 — Tim: No more hail marys. Patch costs $50 million. If the metrics aren’t there, we’ll shut it down. The cash from access will build up on the balance sheet. If we’re turning things around after its piled up we’ll maybe spend some of it.

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