AOL becomes independent, counts on content for success

IDG News Service - AOL officially set sail as an independent, publicly traded company on Thursday, leaving behind its parent company Time Warner and embarking on a journey that could be turbulent.

AOL's years-long transition to an advertising-supported business has been rocky and problematic, and its financial troubles have weighed on Time Warner, which mulled for years ditching the struggling Internet unit.

However, AOL CEO Tim Armstrong, who came on board in March, is confident about his strategy, which focuses on original content, online advertising and Internet communication services.

"It's an exciting day for AOL," he said at a press conference broadcast from the New York Stock Exchange (NYSE). "Today marks a rebirth for the company and what the future will be built on."

Since the summer, AOL has beefed up considerably its staff of "content creators," like writers and journalists, so that it now has about 3,500 of them, he said, adding that more than 80% of the content on AOL sites is now original.

"We believe the next wave of the Internet will really be about content. We have spent since July rebuilding our content engine, which we launched a couple of days ago," Armstrong said.

AOL is also working hard at "rebuilding" its advertising technology and communications services for consumers, he said. "AOL today looks like a very scaled Internet company, a top brand on the Internet," he said.

Yet, signs of trouble abound. Last month, AOL announced plans to cut its global staff by a third and launched a "voluntary" layoff program seeking up to 2,500 employees willing to resign. At the time of the announcement, AOL had about 6,900 employees.

In Time Warner's third quarter, ended Sept. 30, AOL's revenue dropped 23% year-on-year to $777 million. It was particularly troubling that AOL's advertising revenue fell 18%. That's a much more steep contraction than the 1% revenue drop for the global online ad industry, according to IDC.

Since the beginning of 2005, AOL's online ad market share in the U.S. has fallen from 8.2% to 4.4% in this year's third quarter, according to IDC. Ironically, during that period of time, AOL has been deliberately trying to go in the opposite direction, de-emphasizing its traditional dial-up Internet access business and attempting to boost its online advertising business.

AOL's stock (AOL) opened at $23.39 on the NYSE and was trading down 2.53% at around noon U.S. Eastern Time.