AOL's Armstrong gets defensive about Patch, focuses on urbanization

AOL is amidst the early stages of its transformation as a media company in the next digital age, said AOL chairman and CEO Tim Armstrong on Tuesday.

Speaking during the Goldman Sachs Annual Communacopia Conference in New York, Armstrong showed up to reaffirm many of the company's strategies that have been in place since he was elevated to the top position at AOL in 2009.

One of the primary areas of focus for AOL is urbanization, which Armstrong posited that "as the web becomes a bigger place," there will a growing need for brands to have "that urbanization effect." Armstrong was coy and didn't offer further details about a number of products and areas -- including this one -- although he did mention that AOL is keen on doing more "organic work" around its larger properties and building up video and display advertising.

Although Armstrong acknowledged that AOL should be developing video faster, he said that AOL is growing quickly in this field to the point where "advertisers are happy" as AOL has the ability to put video on all of its pages. As for display advertising, Armstrong asserted that AOL is "maniacal about executing this opportunity," and that it is receiving more demand in this field from customers than AOL can execute capacity-wise.

Touching on a local-focus to advertising, Armstrong became a bit defensive when discussing Patch. From the investor's perspective, AOL's leader said that there are two metrics to think about here: traffic and monetization. Originally, Armstrong admitted was really only about traffic and the user experience as Patch gained broader interest.

Today, there are more than 870 Patches nationwide, with an expectation of 1,000 by year's end.

"We’re continuing to learn a lot everyday about Patch, other towns, and how to connect things," said Armstrong, adding that more features will be rolled out in time. He also acknowledged that 2011 will be "the high-water mark for spending on Patch," and spending should go down in a few years based on revenue.

But the constant worry from the press, Armstrong argued, is that Patch is constantly losing money, to which Armstrong replied AOL is "investing on something that is very valuable."

"That’s hard for the world to see," Armstrong explained, adding that AOL is happy with the way things are going and investors who sat in on meetings about Patch would probably have a more favorable viewpoint about this project.

Switching gears to one of AOL's more controversial products as of late, Armstrong had positive words about TechCrunch's founder and former editor-in-chief Michael Arrington, calling him a "very good entrepreneur" and noting that TechCrunch has grown in value to AOL since it was purchased. He did throw in that Arrington was "transparent" about the CrunchFund, Arrington's new venture capital project that was the source of the recent drama.

Nevertheless, Armstrong reiterated that AOL is very excited about the CrunchFund as it gets AOL right into the center of Silicon Valley action and even "AOL Ventures on steroids."

Armstrong was also asked about email and instant messaging, the once-solid foundations of the company that Armstrong admitted have "really struggled during the last decade." AOL's CEO said that the classic mail product is up in usage for the first time in a long time, and that a web-based IM service is finally in the works.

However, he might have pushed the notion of a renaissance with these products a bit too much when Armstrong said that a customer recently told him that AOL is the "new, retro cool email address for us."

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