AOL exec: 'We have a big f-ing problem!'

PHILADELPHIA--Right off the bat: The headline of this post is easily taken out of context. Be it known that it was uttered not in a context of panic, but in a sort of Silicon Valley disruptor-maverick bravado, by former Yahoo executive and current AOL mobile and Internet chief Brad Garlinghouse. His point: At AOL, they know they're screwed up; at Yahoo, they wouldn't acknowledge it.

"AOL, we have a big f-ing problem," Garlinghouse said. "There's no confusion about that."

He was presenting a talk at the Supernova conference about whether tech companies could experience legitimate turnarounds, calling Yahoo's mentality "entirely schizophrenic" and saying that "the first step to solving a problem is admitting you have a problem." That has been quite evident at AOL, thanks to CEO Tim Armstrong's grand talks of future potential, the company's unapologetic dumping of botched social-networking buy Bebo, and the fact that senior management has almost completely changed as the company attempts to finally shake off its past as an outdated dial-up access provider and emerge as a successful digital content powerhouse.

"I certainly was a vocal advocate of how Yahoo should change, but I gave up, I suppose," explained Garlinghouse, who left Yahoo in 2008 amid one of the Sunnyvale, Calif.-based search company's numerous management shakeups. In 2006, he'd authored the vindictive internal memo known as the "Peanut Butter Manifesto," in which he said that the company was spreading itself too thin and needed to reduce headcount by 15 percent to 20 percent.

Following a stint at investment firm Silver Lake Partners, Garlinghouse joined AOL about a year ago and now heads up Silicon Valley operations for the New York-based company. He said in the Supernova talk that "there's no doubt that AOL's making an effort to go through a massive turnaround--internally, we actually use the term 'start-around,'" adding that the company has specifically tried to hire executives with experience in start-up climates and that collectively they embody "the willingness to be dramatic and aggressive and make wholesale change," something that he himself certainly seems to embody.

One of Yahoo's problems, Garlinghouse said, was that it kept innovative, outside-the-box thought off in a figurative ivory tower: a failed incubator project called Brickhouse, created to develop new products in a start-up-like climate. "A lot of very smart people were there, (but) it was this separate appendage," Garlinghouse explained. "It was up in San Francisco in this cool hipster building and it wasn't part of the culture of Yahoo...I thought it was the right thing for Yahoo to do to end Brickhouse because innovation needs to live everywhere at Yahoo for it to be successful."

Brickhouse leader Chad Dickerson left Yahoo for indie e-commerce start-up Etsy in 2008, and had spoken earlier at Supernova. "At Etsy they give an award every quarter for the biggest failure," Garlinghouse related based on one of Dickerson's anecdotes about life at Etsy. "I think that is awesome!"

But Wall Street doesn't always buy Garlinghouse's breed of iconoclasm-evoking grandstanding ("I respect people who argue with me more than people who don't") and AOL still hasn't shown concrete and stable results from Armstrong's grand "start-around" experiment. There's still time, of course, as AOL is still less than a year from its spinoff from former parent company time Warner.

Still, while Garlinghouse and his AOL brethren are good at being honest about AOL's "big f-ing problem," investors--and the rest of the world--are waiting for the day when they can say just as honestly that it's a big f-ing problem no more.

He had one very compelling example of past "start-around" success: Apple. "Brands are a manifestation of the products they build," he said. "The Apple brand was toast. Walt Mossberg wrote an obituary about Apple. I mean, s***! It's there!" Then, in what may indeed be the tech industry's most shining comeback story, ousted CEO Steve Jobs returned late in 1996 and the rest was iHistory.

Garlinghouse lightly backtracked on that point. "I'm not trying to say Tim Armstrong is Steve Jobs," he said with a bit more caution.