AOL chief Tim Armstrong on the 'concerning' Yahoo hack and how he's convincing workers not to leave post-acquisition

As you emerge from the elevators and into the lobby of AOL's New York City headquarters, a sign on the glass doors leading to the reception greets you: "#WeLoveYahoo."

Business Insider met with AOL chief executive Tim Armstrong almost two months to the day after AOL parent company Verizon announced it was acquiring Yahoo for $4.8 billion and a mere five days after Yahoo told the world it had been breached in a massive "state-sponsored" hack, affecting at least 500 million user accounts. The hack could be the largest of all time and Yahoo only gave Verizon two days' notice about the attack before the public knew about it.

It is fair to say Yahoo is weighing a lot on Armstrong's mind. In our quick 15-minute interview before Armstrong jumps on stage at Advertising Week New York, he talks about the most surprising things he has learned about Yahoo so far, his reaction to the hack, and how the combined entity will become the "number three" to Google and Facebook, and "growing quickly."

AOL and Yahoo have worked out the 20 "work streams" they are going to focus on

Armstrong first runs through the process he and Verizon executive vice president and president of product innovation Marni Walden have undertaken so far to kick off the merger process.

Throughout September, the two companies' teams have been meeting to get to know each other and work out how they can best work together.

Verizon has figured out there will be around 20 "work streams" the merged AOL/Yahoo will work on - such as search and the ads platform.

In October and November, Armstrong, Walden, and the Yahoo leaderships team will hash out a strategy that will plug into Verizon's assets. They will be ready to come to market with a "cohesive strategy" by 2017, Armstrong says.

What Armstrong thought he was getting in buying Yahoo and what he got

We ask Armstrong what he thought he was buying when he entered discussions to buy Yahoo and what he knows now.

Armstrong said he has been impressed with Yahoo's work on the mobile development side - both on its own apps and the acquisition of mobile analytics firm Flurry in 2014. On the pure ad tech front, Armstrong says he thinks Yahoo's demand-side platform will be a nice compliment to AOL, which he says is strong on the supply-side.

What's been most surprising during the merger process is how similar the two businesses are, Armstrong said.

"I think people knew the businesses were similar, but I think it's more similar. I think what I mean by that is that Yahoo is going through a turnaround and a lot of that work and strategy is similar to what AOL did when we were turning around the company. So I think there's a lot of opportunity there for us to speed up on both sides," Armstrong said. 

"It's probably surprising how much the footprints have been similar in terms of some of the steps, like the retrenchment from international. We are starting to go global, and they have been retrenching. We already went through that and came back out. They are still retrenching and maybe we want to go and turn that around and come back out."

On digging deep into Yahoo's business, Armstrong has got to know the company's culture, which he describes as a "deep product and technical culture," and says was "really surprising on the upside."

He added: "We have been happy with how dedicated people are towards Yahoo. I think the people who work at Yahoo love Yahoo and that has been great to see."

How Armstrong is convincing Yahoos they shouldn't leave

What, then, has Armstrong been saying to convince Yahoos they should stay on at Verizon? Armstrong has already said there will be "job changes" and any merger usually results in the dreaded "synergies" that usually mean a level of discomfort for employees (or worse - layoffs).

"I think I would look past AOL and what I mean by that is that Yahoo will continue to be a big consumer brand and AOL will have consumer brands - you have a multi-brand front end. It's actually about getting people at Yahoo convinced that Yahoo will get investments for Yahoo. It will still be a big, major, major global brand and we want people to be passionate about Yahoo," Armstrong said.

While the AOL consumer brands - Huffington Post, AOL.com, TechCrunch, and so on - aren't going away, AOL is currently in the process of working out what its new corporate brand will be.

Armstrong said: "The world knows AOL because it was so big at one point. It's great because people know it, but it's also constraining because people have a viewpoint on it. Us having a new parent name over the company, it won't be consumer or something we are promoting to consumers, it's more like a Berkshire Hathaway-type brand."

The new brand should represent Verizon's new ability, in acquiring AOL and Yahoo, to compete with the online advertising duopoly of Facebook and Google, two companies that are way ahead of the rest of the pack when it comes to audience scale and revenue. 

"It's really hard, if you look at Google and Facebook, with the resources and scale of those things, I think [it's about] getting Yahoo people excited that there's a window of opportunity to create a globally scaled business that can be competitive with the top five, or three companies in the world," Armstrong said.

We interject: You'd be the number three, surely? 

Armstrong pauses. Then says: "Yes ... yes." He pauses again.

"The reason I'm saying 'yes ... yes' is that I don't want to send the wrong message to our teams. There are other companies that are growing faster, so we should be number three in general, but we want to be number three and growing quickly," Armstrong said. "I think the trick to the whole deal is making sure we get growth."

"Google is search, Facebook is social, we want to be 'brand'"

Armstrong has previously said publicly that he wants AOL/Yahoo/Verizon to grow its audience to 2 billion users by 2020. The growth will come through its owned and operated properties, plus partnerships like AOL's global advertising deal with Microsoft and MSN, which has given the company the added ability to reach Skype and Xbox users through ads.

Reach is one thing, but engagement is another. Armstrong wants his company to create a "brand engagement index" to help advertisers plan their media not just around where they can find the biggest audience, but the audience most likely to interact with their content.

"Google is search, Facebook is social, we want to be 'brand' and if our strategy is brand, we want to make sure we have brand-level engagement ... that's something we are really working on from a measurement standpoint right now: How do we accurately measure brand engagement," Armstrong said.

He explains that an ad that offers someone a simulator so they can build a car may offer a completely different level of engagement to someone who watched a video for 10 seconds with the sound off, but right now it's difficult to work out which engagement metrics to use and which work best for each advertiser. The plan is to make that simpler.

The "concerning" Yahoo hack

It's time to address the elephant in the room: The huge, historic, catastrophic Yahoo hack. When did Armstrong find out, what does he know now, and how does he feel about it?

Armstrong says the company was told last week and knows just a "sub-set of information" about the issue right now as Yahoo's investigation is ongoing and because the two companies are still separate because the deal has yet to close.

He gives a two-fold response to how Verizon/AOL feels about it.

"For Yahoo consumers, you want consumers to be happy and not worried about their data, so that's concerning," Armstrong said.

"For the Yahoo team, these situations are never because the team wasn't doing their best and we don't want the  Yahoo culture or the feeling behind Yahoo to change because of this. We are very impressed with their talent," he added.

Then there's the acquisition itself.

"On the deal side, from a value standpoint for Verizon shareholders and everybody else involved, we just have to make sure we understand what the data issues relate to and what we were signing up to buy," he added.

How Armstrong is finding life under Verizon

The Yahoo hack - and, indeed, the Yahoo acquisition - are two big indicators of how Armstrong has had to deal with both managing down and managing up, now he is no longer the CEO of a public company and reports into a new boss at Verizon.

The "management communication culture" post-acquisition has been a "pleasant surprise," Armstrong said.

"The basic premise was that we were going to run it as a division and we are going to have a lot of autonomy, we are going to get investments, and we are going to do things. Then over time, we are going to have a two-way cultural impact, meaning that if Verizon is better at doing some stuff, we will have an impact from them, and if we are better at doing stuff, we are going to have an impact on them," Armstrong said.

Having acquired plenty of companies and having been at companies that have been acquired, Armstrong thinks that part of the integration is always "tricky."

Take adding AOL apps to Verizon phones, for example. 

"Verizon is an expert at the phone experience and phone deck tops. We basically need to figure out how to add value to the Verizon team that's doing that deck top. That's a learning process. I think there are cases where there will be friction because it looks like a no-brainer to do those things to us, but the Verizon team may have priorities or engagement metrics they look at," Armstrong said.

But for career salesman Armstrong, he has one clear guiding question, a focus that he wants Verizon to share, no matter how many areas of friction, management changes, and acquisitions along the road:

"How do we go win?"

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