Former Google exec in for Falco at AOL

Tim Armstrong becomes chairman and CEO

NEW YORK -- Time Warner has decided to rely on a Web pro instead of a TV veteran to help it decide the future of its AOL unit, naming experienced Google executive Tim Armstrong to run AOL as chairman and CEO.

Armstrong replaces Randy Falco, who was brought in from NBC in November 2006 and whose contract at AOL wasn't up yet.

Observers on Thursday took the appointment of the Internet veteran Armstrong as a sign that the experiment with Falco, who never managed to light up AOL with the magic of his Madison Avenue connections, has failed.

The reshuffle could also be a sign that TW won't sell AOL outright. Instead, the company seems likely to spin it off and leave it in the hands of a Web professional. Hanging on to it or finding a merger or alliance partner in a structure that would benefit from Armstrong's leadership is also an option.

But a spinoff similar to the one of TW Cable later this month seems a distinct option given Armstrong's stature and the fact that AOL hasn't been able to reach deals in talks with the likes of Yahoo and Microsoft. "We believe the only reason that Armstrong would agree to run AOL is the ability to manage a public company of his own in the near future," Pali Research analyst Richard Greenfield said.

Armstrong, who was Google's senior vp, is expected to start at AOL in April. Falco and AOL president and COO Ron Grant will leave after a transition period.

"Tim is the right executive to move AOL into the next phase of its evolution," said TW chairman and CEO Jeffrey Bewkes, who had brought in Falco in a bid to transform AOL into an ad-driven free platform.

Greenfield called for the removal of AOL's top execs in a blog post earlier Thursday that was titled "AOL's Randy and Ron Show Must End." He called Falco "a TV executive with no Internet industry experience" and Grant "Jeff Bewkes' chief of staff, whatever that means, who had no operational experience."

After the shake-up, Greenfield said: "Tonight's management change at AOL is a significant positive for TW shares, as it will mitigate fears (at least near-term) about TW's most worrisome asset."

Bewkes sounded an optimistic tone as well. "At Google, Armstrong helped build one of the most successful media teams in the history of the Internet, helping to make Google the most popular online search advertising platform in the world for direct and brand marketers."

Armstrong lauded AOL for its "wide-ranging set of assets and audience," adding: "The company is well positioned to enhance those assets into a larger share of the Internet audience and advertiser communities."

Armstrong worked at Google for 8 1/2 years. The company said it plans to replace him from within.