Monday, February 10, 2014

AOL's Tim Armstrong continues to act like an insensitive idiot

I worked for AOL in the early 2000s after AOL acquired Netscape. In 2002, AOL had 26.7 million subscribers. On the day I was laid off in 2002, AOL laid off more than 500 employees, many of them engineers, primarily in Silicon Valley. That was the day that AOL revealed its intention to destroy Netscape as an engineering company and to retain only the Netscape brand and internet portal.

Up until that time, AOL was persuading Netscape employees to stay with the company by giving them substantial bonuses not to quit. This did not stop many of the most talented engineers from leaving the company, however. Those people could get employment at other hi-tech companies in Silicon Valley, and did so. I was never one of the most talented employees, although I was a good employee who had worked at various Silicon Valley companies since 1992.

AOL had good benefits then, but the executives made terrible decisions from a technical standpoint. They acquired Netscape after that company had been responsible for the explosive growth of the internet by its engineering and marketing. During the year previous to the AOL takeover, Netscape engineers had created a new browser, Mozilla, completely redesigned from the ground up to replace creaky code in the old Netscape browser.

Netscape employees were justly proud of this achievement, but AOL didn't care about the browser or the employees. Although the browser was superior to Microsoft Explorer in many ways, AOL refused to base its own browser on the new technology. And it fired all the engineers who had created it. At its height, Netscape employed over 600 engineers, an (as I would guess) about 5 years of software engineering experience each, or about 3,000 man-years. Plus, these 600 had the experience of working together as a unit.

AOL's contempt for Netscape was shown by its decision, shortly before I left the company, to appoint as head of development a person with an MBA and no technical training at all. This person presided over the dismantling of the company, though, so she needed no technical expertise to do that job. At a management meeting in Dublin, Ireland, my partner and I, both engineers, suggested that AOL could improve its product by using patches to make updates instead of reinstalling the entire browser. A middle-management dweeb told us we couldn't do that because the browser was "too big".

My co-worker and I looked at each other in disbelief. Installing patches is how Microsoft updates Windows. Clearly the dweeb had no idea what he was talking about, since Windows is several times the size of AOL browser. Nevertheless, we took the hint and shut up. Suggestions from technical staff were not welcome at AOL, even on technical questions.

AOL's strategy was obvious. They had 26.7 million members paying around $20 apiece per year. AOL could sell these members to advertisers and earn even more income. They had no need to create new products or improve the ones they already had. Management simply wanted to milk the cash cow. The number of subscribers would fall, of course, but it was much more profitable to let them leave than to offer them incentives to stay. Software development costs money. Benign neglect does not, at least in the short term.

David Gang was a salesman in charge of technical development. I worked under his leadership, but never met the man. He was notorious for firing people at random and I couldn't afford to be fired. As they say in Japan, the nail that sticks out gets the hammer. I avoided standing out by avoiding all staff meetings. It didn't matter, because no one knew who I was and I wanted to keep it that way.

I worked for AOL the second time for about a year. My main task was to train engineering interns on the intricacies of programming a web browser. Four of the five interns I helped train were offered regular employment at the company. AOL let me go. I was one of those senior engineers who couldn't be retrained, but who were very helpful training interns.

As a result of their "benign neglect" strategy, AOL in 2013 had only 2.5 million members left, but still enjoyed enormous profitability. In February 2014, AOL's CEO Tim Armstrong announced that the company had increased its net profit for the first time in eight years. He also announced that he was cutting 401k benefits for everyone. The company had earned $412 million in net profits, but would have to cut benefits, he explained, because "two distressed births" had blown his health care budget out of the water. Those 2 births had cost $2 million. And also, Obamacare had cost the company $7 million. Why this was the case is not clear, but it is clear that AOL could have cut their medical insurance losses by buying insurance against overruns.

Armstrong was paid $12 million in the same year that he complained about premature babies and Obamacare.  One of his most successful ideas was buying Huffington Post, an online newspaper that competes in the same space as the New York Times. AOL paid over $300 million for HuffPo, an investment that may pay off. One aspect of the purchase is almost unbelievable, however: HuffPo doesn't pay most of its writers anything. Nada. Zilch. I wonder how those writers feel about contributing to the wealth of Tim Armstrong and his buddies in the 1% by donating their time and energy to HuffPo?

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