Falco and Grant were almost instantly hated when they arrived at AOL's Dulles campus — partly because Time Warner CEO Jeff Bewkes badly mishandled the exit of former CEO Jonathan Miller. (Miller is now a venture capitalist, and both his name and Armstrong's came up as candidates in Yahoo's CEO search.)

Armstrong, head of Google's North American ad sales, seems like the best possible man for the job — and with Google's shares hovering around $323, down more than 50 percent from their peak, and AOL at the nadir of its tumultuous existence, it seems like a good time for him to prove what he can do.

He benefits from an easy comparison: Falco's reign at AOL, where the company's notional value sank from $20 billion to a fraction of that, will go down in history as one of the worst reigns as CEO at any company, anywhere.

But what is Armstrong going to do? He'd never have left his cozy perch at Google to oversee AOL's further decline. Let's assume that's not in the cards.

The best indicator of Armstrong's preferred strategy is not the one he pursued at Google. Based primarily in New York, Armstrong oversaw an agenda set by the geeks in Mountain View. To keep him on board, Google's top managers allowed Armstrong use his Google-IPO wealth to make several startup investments on the side, even when they posed a conflict of interest.

One company, Associated Content, run by Armstrong's college roommate Luke Beatty, lets amateur publishers post content on the Web and get paid a share of the advertising revenues. Another, Patch, is building local news sites with real journalists behind them, in competition with the New York Times.

It's not clear if Time Warner, which is stricter about this kind of thing, will let Armstrong stay involved with his side gigs. But what they spell out is a guy who's itching to be a media kingpin, not the boss of an army of programmers.

What that likely means: The future of AOL will rest in its blog-heavy MediaGlow division, while Armstrong works his Madison Avenue connections to rebuild AOL's slouching ad sales. If he makes it work, it will be a triumph over his old bosses at Google — the ones who believe in the alchemy of algorithms over the hard work of creating content that attracts an audience.

It's been a grindingly frustrating comedown for what was once the preeminent brand on the Web. Microsoft offered to buy Yahoo for $45 billion in February; the company is now worth a third of that. Miller would pay $28 billion to $30 billion for Yahoo, if he can raise that sum from sovereign wealth funds, the investment pools run by cash-flush Middle Eastern and Asian governments. They are understandably skittish at the idea of paying twice the going rate for a stake in Yahoo.

The notion is that Miller would run the show, and thereby make money for his investors. Fired as AOL's CEO in 2006, Miller has been rehabilitating his reputation as an investor ever since. (He's been amply helped by his replacement, former NBC executive Randy Falco, who has proved to be a thoroughly useless corporate stooge.) But Miller did not demonstrate at AOL what Yahoo so desperately needs: a keen product vision, and a ruthless determination to get his way with dithering engineers.

It's pathetic, really, that Yahoo hasn't yet been sold or found a CEO to replace hapless founder Jerry Yang. The company's traffic is still immense. And it's big in Japan! Someone, somewhere ought to think that Yahoo is worth saving. That Miller is the best Yahoo can find speaks volumes

The real story: Falco freely admits he knows nothing. "I don't know anything," he told Carlson. Who's Yahoo's next CEO? "I don't have any idea." Falco, the boss of a fallen company that is nonetheless one of the largest sellers of advertising on the Web, is out of the loop, clueless, unplugged. He has no bits of gossip to trade one one of his biggest competitors, no spin to offer. Why should he? Time Warner has plainly put AOL up for sale behind Falco's back; Falco is just punching the clock as he presides over AOL's disassembly.

What's odd is that Time Warner CEO Jeff Bewkes isn't getting more criticism for AOL's numbers. As the head of HBO, he was one of a handful of Time Warner executives who loudly opposed the AOL deal. But enacting Time Warner's revenge on AOL by driving the business into the ground seems a strange way of making things right with shareholders.

Bewkes's hand-picked boss for AOL, former NBC executive Randy Falco, has been a complete disaster — a short-timer waiting for the company to be sold. Bewkes and Yahoo's Jerry Yang have been holding desultory talks on selling AOL to Yahoo. But Bewkes's negotiating position is considerably weakened by these results. Why didn't he sell sooner — and when will he pay the price for mismanaging AOL?

It's as if he thought that playing a game of buzzword bingo would masquerade as strategic thought. A television salesman by trade, Falco was plucked by Time Warner CEO Jeff Bewkes from NBC Universal to replace Jon Miller, in a universally derided move. A commonly held belief among insiders: Falco and Bewkes thought AOL would be sold off by now, with Falco moving on to some role at Time Warner's film and television properties. AOL has continued to embarrass. And so has Falco. The only question is which exit will come first.

AOL is getting ready to have major layoffs again. After a so so report card rumor has it that they are selling their MTC & DTC data centers and will be contracting all of the services out to Emcor. There are way too many managers and a lot of them are expected to get laid off. After attending meetings it appears that upper management has finally realized they are way too many managers in technologies and that it would be better to contract central config, asset management, IPE's and SI.Operations is going to take a big hit.

MTC and DTC are datacenters based in Manassas, Va., and the vicinity of Dulles Airport, respectively, near AOL's former Northern Virginia headquarters. Emcor is, as best we can tell, a facilities and construction manager better known for doing the wiring on datacenters than running a network operations center. It's not clear how AOL's websites will fare during a transition to a new, inexperienced Web host. AOL employees: You've got layoffs. AOL users; You've got fail!

(Photo of AOL server farm via KK)

Candidates for the job who currently work at Microsoft include SVP Yusuf Mehdi, once Microsoft's online chief; Brian McAndrews, the former CEO of Microsoft-acquired aQuantive; SVP Satya Nadella, who runs search engineering, among other responsibilities; and Bill Gates's replacement as chief software architect, Ray Ozzie.

"Yusuf is not an operator and Satya is a possibility but would be a stretch," a source tell us. "I would bet on Brian McAndrews. But McAndrews might not want it as he made serious bank with the sale of aQuantive and may not want to do more than he has to finish his earn out. I mean, what’s the marginal upside for him?"

As for Ozzie, Kara Swisher quotes all kinds of Microsoft developers who hope he'd take the job,but another source tells us: "I think he's got the gig he wants: basically, being a visionary. And he's great at it."

One problem with Ozzie, says our source: "Only thing I've heard so far is [the candidates are] not internal." So scratch Ozzie and the rest off the list!

"My guess is they'd want to poach from Google, for appearance's sake," says our source. He suggested we take a look at ex-Microsoft employee, Mark Lucovsky — head of Google's search APIs. The problem with Lucovsky is that Microsoft CEO Steve Ballmer might not want to take him back — he reportedly threw a chair when he heard Lucovsky was leaving Microsoft for Google in 2005.

Swisher's Microsoft sources also nominated former Yahoo COO Dan Rosensweig for the job, but a source says: "Dan would never do it given loyalty to Yahoo."

So who's it going to be? The people we talked to gave us the usual boring non-answers — "I imagine Microsoft might take a little time to really look around. There is no massive rush." So we'll suggest another scenario: Why doesn't Microsoft pull a Sandberg?

Sheryl Sandberg was a relatively obscure VP at Google, but she had an important job — overseeing the automated systems that pulled in Google's billions of dollars in advertising revenues.

Our guess: Someone from AOL, possibly Lynda Clarizio, boss of AOL's Platform-A advertising division. Microsoft seems eager to buy AOL —AOL dealmakers met with Microsoft in Seattle last week, and yesterday, AOL started cutting costs in an effort to pretty itself up for a sale — and Clarizio would probably be the top executive to come over in the deal.

AOL CEO Randy Falco wants to get a Hollywood job at Time Warner after putting in his time at AOL. His henchman, Ron Grant, has lost favor of late. Is Clarizio too salesy for the top online job at Microsoft? Probably, but then, there is evidence Microsoft CEO Steve Ballmer might not mind.

(Photo by adpowers)

Bewkes has been trying, on and off, to swap AOL and a fistful of cash for a 20 percent stake in Yahoo, which would help CEO Jerry Yang fend off both Microsoft and Carl Icahn. Yahoo executives aren't particularly interested in having AOL's aging Internet assets dumped on them to manage — but they were eager to buy Bebo, particularly Yahoo Europe head Toby Coppel. Yahoo has a deal to sell ads on Bebo in Europe, a deal that most expect AOL to do away with after it expires. Buying Bebo serves to makes AOL more attractive to Yahoo — and if that gets AOL off Time Warner's back, then it may be $850 million well spent.

It's clear that the industry is in a state of extreme flux. Each day brings new rumored combinations of companies. But what's not surprising is AOL's appeal in this rapidly changing environment. The market is recognizing the value of what we've built together over the past year and a half.

Dear AOL colleagues,

I'm sure you've read some of the recent news speculating about potential AOL partnerships. While the company can't comment on any discussions at this time, I'd like to provide some perspective on the industry and AOL's position in the market.

It's clear that the industry is in a state of extreme flux. Each day brings new rumored combinations of companies. But what's not surprising is AOL's appeal in this rapidly changing environment. The market is recognizing the value of what we've built together over the past year and a half, as we've shifted from a subscription model to an advertising-supported business. It's a remarkable transition that is gaining momentum with each passing week. Our focus on capturing growth in three key areas - publishing, advertising and social media - is beginning to pay off.

In publishing - which includes Programming, Products and Platforms - our focus has been on growing audience size and engagement. The results have been very encouraging. In February, AOL had its fifth consecutive month of growth, with page views up 16% over the same period in 2007. Thirteen of AOL's content sites - such as Music, Television, News, Money & Finance and Celebrity - rank in the top 5 in their respective areas. Our rejuvenated Programming and Products appeal to people who now roam widely for what they want on the Web and align more closely with the kinds of passionate audiences marketers need to reach. The result is that AOL is now attracting a younger, more engaged and more valuable audience than ever before.

In advertising, we're focused on building the most effective and efficient marketplace for buying and selling digital advertising. Platform-A combines some of the strongest assets in the digital advertising business into a unified solution for marketers to build their brands and publishers to monetize their content. By integrating the reach of Advertising.com with the relevance of our industry-leading targeting technologies and the richness of AOL's content network, Platform-A will connect marketers to their audiences with engagement, efficiency and ease. Delivering on this means we need to move even more quickly to integrate the Platform-A companies into a seamless organization. In the three weeks since her appointment, Lynda Clarizio has moved quickly to announce the formation of one aligned sales organization that will have the ability to sell advertising solutions across Platform-A, supported by vertical teams focused on our content areas and product teams focused on selling individual products. To make it easier for advertisers and agencies to work with us, we now will be offering the ability to buy media across Platform-A with one contact and through one sales force.

In the social media area, we're focused on empowering a truly social Web with programming and tools that help connect people, cultures and lifestyles around the world. Bebo, together with AIM and ICQ, will create a social media network reaching 80 million people worldwide. This is a young and fast-growing market with huge potential. But despite drawing large, engaged audiences, other social networks have not been able to make the experiences relevant to users and marketers alike. Our opportunity involves integrating social media with our publishing and advertising networks to create more relevant content for the Web audience and more relevant marketing for advertisers. While the Bebo deal hasn't closed yet, I'm looking forward to sharing more about the many opportunities I believe exist for Bebo in combination with some of AOL's most exciting assets.

Our collective rebuild of AOL over the past year and a half has positioned the company to prosper in this dynamic market. We know that strong, profitable companies have more control over their own fate. We still have more work to do toward this end. So I want to ask you today to stay focused on the work at hand: continuing our transformation of AOL into a global advertising-supported Web business.

Randy

For fast-growing stocks, analysts sometimes calculate PEG, or the price/earnings to growth ratio. Instead of valuing a company on current earnings, PEG attempts to take into account future earnings. Bebo's earnings grew 67 percent last year. That gives Bebo a pricey PEG of 2.38. Google's is running at 0.61 after its recent stock drop. Why didn't AOL just hold onto its Google shares instead of selling them in 2005? That way, it would have at least kept a piece of Orkut.

• Bebo ranked 4th among a custom category of 55 social networks, after MySpace, Facebook and MyYearbook for Feb-08 receiving 1.15% of all U.S. visits to the category.
• MySpace's share of U.S. Internet visits was 67 times larger compared with Bebo and Facebook's share of US Internet visits (among all categories) was 11x that of Bebo in Feb-08.
• Bebo's share of U.S. Internet visits is down year on year. Share of U.S. Internet visits (among All Categories) to Bebo were down 23% last week and down 22% in Feb-08.
• The average time spent on Bebo in Feb-08, was 30 minutes and 26 seconds, more than both MySpace (30m7s) and Facebook (21m0s). The average time spent on the site is flat year-over-year, MySpace is slightly down and Facebook is up 69%.
• 22.15% of U.S. visits to Bebo last week came from MySpace last week.

I work for AOL in Dulles. AOL celebrated the start of the new year by cutting the budget for watering all the indoor office plants all over Dulles. We came in to find "adopt a plant" posters hung up in the common areas with a corny rhyme about not letting the plants die. Now they're starting to wilt and go black, leaning helplessly against nearby walls or concrete pillars. It's pathetic. Some people inquired about taking them home (there are nice established ficus trees and palms etc.) and were told to either water them, or let them die, at which point they would be removed. I hate symbolism at work.

Another tipster tells us that a "friend of mine who worked at Lexmark said that they fired their janitorial staff. Told employees to take out the trash. Now instead of paying someone $5 an hour to do it, they were paying him $30 an hour." Excellent cost-saving measures all around.

(Photo by brionv)

Word has it that during an earlier presentation at the IAB conference, Microsoft ad exec Brian McAndrews left AOL off a list of competitors. Falco didn't take it well. He said, "Microsoft and Google can ignore us and leave us of charts if they want, but they do that at their peril."

It's over a year since I came to AOL. When I arrived it needed work. More than I expected. Pageviews were in decline. Products were behind and underinvested. Advertising needed investment. I needed to rebuild AOL. Let me highlight progress. We upgraded products. We've refreshed programming. Everything was trending downward on AOL Search; changes have turned these trends around. Internationally, there's upside for AOL. Our ad network reaches 9 in 10 Web users in the U.S. We invested $800 million on advertising. Cutting costs and laying off people is about resource allocation and being smart. I feel really good. I'm making progress. Happy holiday.