How soon will AOL become Google's prime competitor?

It's time to stop with all the "I told you so's" and the gloating and the self-congratulation, on the part of everyone (myself included) who never saw synergies between the former America Online and Time Warner, who are just as capable of reading the big, fluorescent handwriting on the wall as anyone else. We knew it wouldn't work. End of part one.

The task before Tim Armstrong -- minted as CEO of AOL in March -- and his team is to define the company. It has some very old parts and some very big assets, but other than that, it's a startup. If you "Google" Tim Armstrong (a number of ironies latent in that phrase), you discover almost instantly the type of independent CEO he will be. He helped build Google into the advertising sales giant it is today (its merger with DoubleClick notwithstanding), and he takes the knowledge of that blueprint with him to AOL. He is an ad man, and AOL will be an advertising platform.

Before you come to the conclusion that AOL is already a dead hulk, keep in mind that the part people focus on the most is the part that faces the public most directly. That's the AOL "portal," the service that defined the original company and which used to garner subscribers. It's still a problem for AOL, but getting rid of Time Warner's baggage is the first step to resolving that problem.

Behind the portal -- the part many folks don't appreciate -- is what is and may continue to be for some time the Internet's most effective advertising component, Platform-A. According to comScore rankings released last week, Platform-A continues to reach 91% of the US' Internet users -- meaning, sometime over the month of April, 9 out of 10 Americans were served an ad by Platform-A. Google's network (formerly considered DoubleClick's) reaches 85% of American users, and that number continues to grow. But the efficiency and versatility of Platform-A is now an established fact, and Google's gains will not result in losses for Platform-A in this department -- this isn't a market share metric.

So if Platform-A were a rocket, we could say it can comfortably burn at 91%. But how much thrust does that deliver? That's been the problem of late, as indicated by AOL's own first quarter corporate report, shared with the SEC last month (PDF available here). Advertising revenue for AOL Network declined by 20% annually in the last quarter, for reasons the company described thus: "The decrease in display Advertising revenues generated on the AOL Network was primarily due to weakening global economic conditions, which contributed to lower demand from a number of advertiser categories and downward pricing pressure on advertising inventory. The decrease in paid-search Advertising revenues on the AOL Network, which are generated primarily through AOL's strategic relationship with Google, was attributable primarily to decreases in search query volume on certain AOL Network properties."

That strategic relationship is now being rethought, as Google is selling is exercising its option to sell its 5% stake in AOL back to Time Warner prior to the spinoff. It isn't the reach of Platform-A that's been wearing down on AOL, if we read this correctly. It's that the effectiveness of "portals" -- the things that AOL said four years ago would constitute its primary product -- is declining, especially amid an Internet landscape that's being defined more and more by connectivity and social interlinking than by front ends and gateways.

The big synergy play with AOL + Time Warner was the notion that content would flow freely from the New York + Hollywood juggernaut into the Dulles factory. But that synergy could only work if the principal dynamic of the Internet's evolution were to cease in its tracks: namely, that the Internet is changing the nature of content itself, forcing old New York and old Hollywood to reconstruct themselves in order to survive. That restricted the flow of oxygen to AOL's portal, as Time Warner became the biggest weight around its neck.

As of the third quarter of 2009, that'll be gone. With a healthy platform still capable of generating the energy it needs to move, Tim Armstrong and company can now focus their attention on redefining the part of AOL that faces the public. It now has the opportunity to scrap everything we think of with regard to a "portal," and without Time Warner weighing down on it and without Google taking a piece of it, re-engineer that part of AOL that connects with his customer.

And looking at Armstrong's record, does anyone have reason to believe now that he can't accomplish that?