Bartiromo talks Internet future with AOL's Armstrong
President Obama wants to regulate the Internet much the way electric utilities like phone companies are regulated, following rules written in the 1930s. When he announced his recommendation that the FCC do this last week, a host of Internet and telecom companies came out swinging, arguing that it would be a disaster for users of the Internet as well as the companies behind it. I caught up with AOL CEO Tim Armstrong to get his take. He is leading change at one of the first brands to become the face of the Internet 20 years ago. Our interview follows, edited for clarity and length.
Q: The president wants to regulate the Internet. He says it will keep it open and fair. Should internet companies be regulated like utilities ?
A:We are encouraged by the President's comments. We believe in equal treatment of all legal content for all users. This has been at the heart of the Internet's success and we are in favor of anything that preserves that principle.
Q: Can you characterize what you're seeing in the marketplace today?
A:We are seeing two really significant trends. One is the ability for consumers to get content directly on smartphones, which is a new phenomenon. You are seeing very fundamental, big shifts from just a few years ago. An example of that would be watching NFL games on your phone, which is a significant trend toward content going to all devices and a big consumer benefit. The second is that advertising's becoming as easy as e-commerce. So, the same way you can go to Amazon and buy a pair of shoes, advertisers are able to buy advertising using online systems, which is a major innovation. These are the standouts: Growth in consumer traffic by content going to more devices; and for the business community, advertising becoming as easy as e-commerce.
Q: Is video a big part of this?
A: Video is a very big part of it -- 70% to 80% of the Internet traffic is projected to be video in the next couple years. the world loves to be entertained. And the Internet's been great at connecting the world. now it's about entertaining the world. The first phase of the Internet was about connecting people. The next round is about personalizing content and experiences.
Q: Can you explain programmatic video ads? And is that the reason that you acquired Adap.TV?
A:Yes, it is. The easiest way to think about programmatic video, is, if you were going out in the world to buy a TV ad today, you would spend months planning it, a year doing the creative, and you wouldn't get the results back of how it performed for a year after it was done to get the total campaign performance. But with programmatic video, you can do 200% or 300% of the work at 10% of the time in a fraction of the normal operating costs to do it. So, it's mechanizing the future of TV and video advertising with machines and letting the creatives inside the video and TV advertising business do 100 times the amount of creative they were able to do before. So, it really fits directly into Clay Christensen's innovator's dilemma model. And that's why it'll be successful.
Q: What does that mean in terms of your agenda, in terms of where you take this business?
A:There's three simple ways we're growing the business. One is creating the brands for the next 100 years. we've invested in the Huffington Post, in TechCrunch and a woman's brand named makers.com, And the second is around creating video brands and partnering for the next-generation video. We have partnered with people like Nicole Richie and Sarah Jessica Parker and others to build the next generation of video programming for the Internet. The third area is on the business-to-business or b2b side of our business, where we've enabled video and advertising for tens of thousands of publishers and advertisers across the Internet, taking advantage of scaled platforms that are mechanized with machines. So, the same way that the travel industry and Wall Street have been affected by machines and the growth of technology, the consumer-content space and consumer advertising space are right at the start of the changes that we've seen in other industries. Right now, 50% of our traffic is mobile. And we believe that advertising revenue over time will catch up to that.
Q: What about things like display ads? This has been a weak spot for the industry.
A: We saw our display growth up about 7%, when we adjusted for some of the properties we changed. That's growing faster than the global ad industry. But you point out something that's really important. I would consider us to be in the second generation of the Internet. I've been doing' this for 20 years. The first 20 years was about people getting connected and advertisers in a very rudimentary way, putting ads in front of consumers on the Internet. Today, it's about premium formats and video and sophisticated ad creatives that are enhanced by technology. And I think you'll see the historic banner-ad space decline over time. And you'll see it overtaken by things like video and mobile and utility-based advertising.
Q: But do you need to get bigger, in terms of scale to capitalize on this? Obviously, the elephant in the room are these activist investors out there who are pushing for change. Investor Starboard, for one, wants you to merge with Yahoo. How do you keep your eye on the ball when you've got outsiders telling you what's best for your business?
A: The outsiders are talking about AOL because our strategy is dead on where the Internet goes. And four years ago, when we started this strategy, not many people could see as far as we were looking around the corner. But I think today, when you wake up and it's about video, it's about mobile, it's about programmatic advertising, AOL is a leader in that. And we're not surprised that there's activity around AOL. But the reason we got to where we are is 'cause we have focused on building a really talented company. We focus on building really great partnerships and on building platforms. So as much as we pay attention to what's happening in the outside world, our first job is to build the world's best products and services.
Q: Would you wanna do that deal? Wouldn't that make you much bigger and give you more scale?
A:Maria, we are absolutely fans of taking our strategy and making it bigger with scale The only thing that we control and what we focus on is how we do that ourselves. And we built a great company at AOL. So, we spend most of our time worried about that and growing. And we've scaled our company without other people needing to be involved with us. So, we're gonna continue down that path and take the road less traveled.
Q: What can you tell us about pricing and revenue growth?
A: You see some of the people in our industry, where prices are dropping, AOL's prices have been going up. And we've done a tremendous amount of innovation in terms of ad formats and switching to the innovation in video. We had great consumer-traffic growth. And we had great growth in terms of the key areas of the Internet that are changing for advertising around video and programmatic. So, our ability to be one of the few companies that's scaled and grown pricing really comes from the strategy that we've had around the consumer side and the advertising-format side.
Q: Where are people spending most of their time online?
A:For the AOL core service, we have tens of millions of people who use that. We have the longest time spent outta the major portal sites on things like Huffington Post, which have 50% of their traffic on mobile and 50% outside the country, so you're starting to see a lotta people spend time on mobile. And then, globally, Huffington Post has grown from 20 million users when we bought it to 100 million users. The second piece that's big is the amount of video growth -- overall. We saw almost a 70% increase in engagement on video year over year, in terms of time spent and the amount of videos that people watched at AOL. So as the Web is getting more sight, sound and motion. The products and brands we have are growing. TechCrunch is seeing the time spent in traction in terms of both on their off-line events and online sites as well.
Q: And you are engaging women: BBG Ventures is a venture capital fund. And your partnership with Girls Who Code, right?
A:AOL was probably the first large media company, and by far the first Internet company, to invest in women's leadership. And three and a half years ago, we made the decision to build and launch makers.com, which is the largest set of women's leadership stories. With the success we've had there, we've launched in the U.S., we're now in China as well with makers. We also saw a gap in the marketplace for what is the next generation of women's leadership, which will really be about how technology and women's leadership matched together. And we decided to take one of our properties, which is for young people, called Cambio and partner with Reshma and the team from Girls Who Code and change our brand into a Girls Who Code brand and call it a brand that's powered and built by girls.
Q: When you look at AOL today vs. 20 years ago, when we first had an Internet boom and bust, how is AOL different?
A:AOL's core DNA is the same, which is we want to be the place that simplifies the Internet for people and unleashes people's creativity and the best of culture and code. AOL was the first brand that took a technological movement, which was the Internet, and put a consumer and culture-driven face on it. If you look at what we're doing in video, on the global-content-brand side and some of those things, we're doing the same thing today that the company did 25 years ago. But we're doing it at the forefront of the Internet. I'd say the other thing that's the same, I think if you go back 25 years in AOL's history, you have some of the most disruptive thinkers and creative people being attracted to AOL as a company.
Q: What about the social media phenomenon and how does AOL fit in it?
A: We're the No. 1 most-distributed news service on social with Huffington Post so, we're big believers in social. But we really believe the next generation of the Internet will go from social to personal. If I gave you the Batphone and said, "You can only call if you got the best news in the world that's ever happened to you and who you wanna intimately share it with, my guess is you would have seven to 10 people in the world that you really want to share everything with. In your case, you probably have 7 million people that you could share it with outside. What we're trying to do is make people's lives better and get them socially connected, but really personally connected. And it's about your real friends and your real family. And the services we build enhance people's real friends and real family and make things personal.
Q: What about valuations? When you look at even the private market, like, for example, Uber being valued at $17 billion, and many others like it, some people say we're back to the bubble days of the 1990s. Are we?
A: AOL is a great investment, I believe, personally. Because we are one of the biggest disruptors in the industry. Disrupters of content, advertising and video. And we're at one of the lowest valuations. So, no, I do not see it.
Maria Bartiromo is anchor and global markets editor at The Fox Business Network. Her daily show, @openingbellFBN can be seen weekdays on FBN 9-11 am et. Tweet her @mariabartiromo and @sundayfutures.
