Why Tim Armstrong Got The Job

Mar 14, 2009 | Updated May 25, 2011

The media blogsphere is atwitter with the news about Tim Armstrong becoming AOL's new CEO. The first flash was by Henry Blodget (@hblodget) of Silcon Valley Insider on Twitter followed immediately by Kara Swisher's first interview with Armstrong on Boom Town in the Wall Street Journal's All Things Digital blog.

Silicon Valley Insider
, paidContent, Online Media Daily, Advertising Age, and Gawker's Valleywag all rushed out with the news. They told the how, what, where, and when of the story but not the why.

Many blogs and news sites gave the facts and interviewed people who knew Armstrong or who had an opinion about Time Warner CEO Jeff Bewkes' decision to hire Google's head of sales. One site, Online Daily News, even published an interview by Diane Mermigas conducted with AOL CEO Randy Falco before he was dumped. But no one interviewed Bewkes and asked him why he fired Falco and COO Ron Grant and hired Armstrong - not that Bewkes would have agreed to an interview or would have revealed his reasons.

So, why did Jeff Bewkes hire Tim Armstrong? Let's look at some clues. In his interview with Kara Swisher "Armstrong confirmed that the talks to take over at AOL had only started a few weeks ago, increasing in 'intensity over the last week.'" Then, there's the Advertising Age story, which is the only one that had the key to solving the riddle:

Google CEO Eric Schmidt released a statement: "Since arriving at Google eight and a half years ago, Tim Armstrong has been a critical force in Google's advertiser-facing operations. We're very sad to see him go, but would like to take this opportunity to wish Tim every success and good fortune in this new role at AOL -- one of Google's longest-standing partners. He's one of the most creative, fun and respected leaders in the ad industry, and we have all loved working with him at Google. We'll announce an internal candidate as Tim's successor in the coming weeks and are delighted Tim will remain with Google for the next month to help oversee this transition."

Google and AOL have had a close relationship over the years. Google powers AOL search, for example, and paid $1 billion for a 5% stake in the company in 2005. Last month Google wrote down the value of that stake by $726 million and exercised its right to have Time Warner buy back the stake at "fair market value" as of July 1, 2008, or take AOL public.

Does it seem reasonable to think that after making a series of colossally dumb personnel decisions by putting his cronies and suits in top jobs at HBO and AOL that all of a sudden Bewkes got smart? Look at the timing: Armstrong says he'd been talking Bewkes for "a few weeks" and a few weeks ago (a month ago) Google exercised its right to have Time Warner buy back its stake in AOL at fair market value (about $250 million) or take it public.

Don't you think Bewkes had a conversation with Google's CEO Eric Schmidt a month ago about the situation? I do. And here's how I think the conversation might have gone:

Bewkes: "Are you going to exercise your put option on your $1 billion stake in AOL?"

Schmidt: "Of course. We had to take a $726 million write-down on that turkey. You owe us $250 million or have to take it public by July 1st. Plus we have to re-negotiate our search deal with you."

Bewkes: "Gosh, we're trying our hardest. Our relationship with Google is the most important relationship we have at AOL. What can I do to get this on the right track?"

Schmidt: "Get rid of Falco who's a decent guy but knows nothing about the Internet, broom that prick Grant who everyone at AOL and in the business hates, and hire Tim Armstrong. He's smart, knows the business, and is a genuinely nice person who the AOL people will love and respect. He's bored here and we're going to lose him to be a CEO of some big company. Hire him before someone else does. Also, I trust him. He'll be able to work with us to get a new search deal done that's fair to both of us. But I know Tim well enough to know he doesn't want to work for you or the bureaucratic, screwed-up Time Warner. To get him you'll have to promise to spin AOL off to become a public company, which, by the way is what we want too. Google doesn't need $250 million because we have plenty of cash. The only hope we have of getting back our investment is for AOL to get away from Time Warner's mismanagement and be a self-standing company run by someone who knows what he's doing for a change."

Bewkes: "Yes, Eric."