AOL taps Google executive Armstrong as CEO

SAN FRANCISCO -- An executive from Google Inc. is becoming the latest CEO of AOL, raising hopes that he will be able to turn around Time Warner Inc.'s struggling Internet unit.

Tim Armstrong, who had been a senior vice president at Google and head of the company's North and South American advertising operations, replaces AOL CEO Randy Falco, a veteran television executive who took the job in November 2006. Falco, along with Ron Grant, AOL's president and chief operating officer, are leaving AOL.

Armstrong, 38, also will take over from Falco as chairman.

This shake-up could mean a spin-off of AOL is more likely. Time Warner CEO Jeff Bewkes has said he's open to a merger or sale of AOL, and in a statement Bewkes said Armstrong would be "helpful in helping Time Warner determine the optimal structure for AOL."

"Tim is the right executive to move AOL into the next phase of its evolution," Bewkes said. "At Google, Armstrong helped build one of the most successful media teams in the history of the Internet."

Armstrong worked at Google for 8ˆ½ years. As the company's first employee outside of Mountain View, he started up its New York office.

The transition is another sign of turmoil in Time Warner Inc.'s decade-long attempts to salvage its 2001 acquisition by AOL, once known as America Online. The $147 billion AOL-Time Warner deal symbolized the astonishing wealth created by the dot-com boom and quickly became one of the most disastrous marriages in U.S. corporate history.

During the past few years, AOL has been realigning itself around three core businesses -- its "Platform A" advertising unit, "MediaGlow" publishing unit and "People Networks" social media unit. These businesses are meant to bring in revenue through online advertising, as a way to offset losses from its fading dial-up Internet access service.

Besides realigning AOL, Time Warner has made moves to separate the dial-up operations from these ad-focused businesses, which would make it easier for Time Warner to sell one or both.

Richard Greenfield, an analyst with Pali Research, called the management change "a huge positive all around" for Time Warner investors. With Armstrong at the helm, he thinks it's more likely that Time Warner will eventually separate the AOL unit from its main business.

Kevin Lee, chief executive of search marketing firm Didit, feels the same. If the economy and stock market improve, and Armstrong is able to shape up AOL, he thinks it is possible that Time Warner would spin the business off as a public company or sell it.

Regardless, he's certain Armstrong has plenty of work ahead of him.

"If he wanted challenges, he picked a great place for challenges," Lee said.