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AOL comes out fighting against sceptics

Tim Armstrong was three weeks into his job as chief executive of AOL in 2009 when the head of one of the largest media buying companies walked up to him at a conference, handed him a bag of marbles and asked: "Have you lost these?"

The implication was that Mr Armstrong had lost his mind to leave his job as Google's top advertising executive to take the reins at AOL, the internet company that has been struggling to find its way since its disastrous $100bn merger with Time Warner in 2001.

Mr Armstrong, 41, is still battling scepticism from the advertising industry and Wall Street about AOL's ability to turn itself round. But after surviving a proxy battle last month with a dissident shareholder, and boosting AOL's shares with a patent sale, he has a stronger case.

On Tuesday, Mr Armstrong plans to announce the appointment of a new chief marketing officer and a shift in AOL's marketing focus, from concentrating only on the AOL brand to boosting the stable of brands under its umbrella, such as the online news and commentary site Huffington Post, technology blog TechCrunch, film site Moviefone and Games.com. "We're going from resuscitating the core brand to being a stable of brands," Mr Armstrong told the Financial Times. Jolie Hunt, previously global head of brand and public relations at Thomson Reuters, will become Mr Armstrong's first chief marketing and communications officer. Her appointment comes as AOL is interviewing for a new chief financial officer and two new independent board members.

Mr Armstrong has tried to turn around AOL's fortunes and reputation by focusing on creating buzz-worthy content and raising the profile of its digital advertising business.

He has slashed the company's workforce, sold assets and struck high-profile deals, including the $315m acquisition of the Huffington Post. He has also made controversial investments, the most prominent being a local news network called Patch that operates in hundreds of towns across America.

But AOL has lost share in the market for display ads, according to research firm eMarketer. Traffic to AOL sites was down 4 per cent in May to 110m unique US visitors, according to ComScore. AOL reports second-quarter earnings July 25.

Mr Armstrong's strategy has come under fire, especially from Starboard, the activist shareholder that campaigned for board seats and questioned AOL's investment in Patch, which totalled about $160m last year. Mr Armstrong said AOL had won its proxy battle in part because it had unlocked value for investors, who "see the continuum of us improving the company".

Mr Armstrong said the new brand approach could produce growth on the web, on mobile devices and in digital television, adding that he hoped AOL's relationship with its other brands would resemble the way Walt Disney operates sports television network ESPN and the television network ABC.

When he arrived at AOL, it had about 340 brands. He has since trimmed the portfolio to focus investment on 10 to 20 strong brands. "Two years ago, 80-90 per cent of the brands were in real trouble," he said.

The new brand focus is part of a strategy to focus investor attention on the businesses within AOL, which will include a move to more detailed financial reporting of its business segments.

"If you added up all our brands and compare them to M&A activity in the [internet] services marketplace, our brands would be worth a lot of money for investors," Mr Armstrong said. "AOL is a top five internet brand with a valuation that doesn't reflect that. There can be a pretty substantial value increase for the company by just leveraging the brand potential."

AOL is also looking for more international opportunities for its brands, having expanded TechCrunch in China and struck a partnership in Japan for Advertising.com. Having cut AOL's international operations when he arrived, Mr Armstrong says he now sees opportunities in 12 to 15 overseas markets. Products will be designed with a global market in mind, he said.

AOL's challenge is often compared to that of Yahoo, another veteran of the first wave of big internet companies. Mr Armstrong said AOL would be better off once the succession and strategic turmoil at Yahoo dies down. He said that AOL has fared better than Yahoo because it has had a clear strategy and stable board and chief executive.

"We are the more successful [compared to Yahoo]. I hope Yahoo's going to be successful," he said. Yahoo on Monday named Marissa Mayer, a former Google executive, as its new chief executive.

"We live in a hurricane of noise. People will realise the noise is a wind tunnel," Mr Armstrong said, referring to the criticism surrounding AOL.

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