Updated: Armstrong: Mission Is To Make A Sick Company Healthy

AOL (NYSE: AOL) CEO Tim Armstrong knew he would have to do a lot of investor soothing given that it posted another tough earnings report for Q2. He described the mission before him as very simple: making a sick company a healthy one. Invoking Warren Buffett’s “snowball” metaphor for the growth of his portfolio depending on finding a wet snowball and a steep hill to roll it down. “We’ve got a tightly packed snowball” at AOL, Armstrong said. He also described a “platform war” currently going on in Silicon Valley and how “content is the ammunition” and AOL will be a central supplier of that firepower. In explaining the dismal ad prospects, despite the recovery, Armstrong said advertisers continue to lag consumers in adopting online media.

Video is going to be a focus for AOL and Armstrong noted that there will be some branded entertainment partnerships announced shortly. StudioNow, which it bought last winter, grew 25 percent in terms of video output from the last quarter. “You will see a new home page that is targeted heavily around video this quarter,” Armstrong said.

On the local front, AOL’s hyperlocal play Patch added 39 new towns for a total of 83 localities in its network.

“Nobody likes to show up to these calls and report down numbers,” but Armstrong wanted investors to known that he has his own money tied up in AOL as well and asked for continued patience as he attempts to turn it around.

Meanwhile, Q3′s results is looking “choppy.” In terms of products he is happy about, Armstrong again focused on the homepage — which attracts about 15 million uniques — and Patch and Mapquest.

– Updated: Following the call, I spoke with Armstrong about his goals for this current quarter and how the plans were affected by Q2′s performance. “This has been the first quarter where we were able to talk about real products that consumers can see, as opposed to the advertising services we’ve rolled out previously,” he said. “One of the things you’re going to see from us on an ongoing basis right now is a rolling thunder of products that are meant for consumers and improving their experiences.”

One of the first improvements will be felt on the homepage, which as Armstrong said earlier, will be more heavily focused around video. After that, Armstrong is planning a revamp for some of the other big AOL brands, such as Mapquest and Moviefone.

On the advertising side, AOL also has some plans to reverse the declines its experienced in display. For example, Ad Desk is being built as — “And this is probably not the best analogy these days,” Armstrong said — a “Goldman Sachs structure,” where the platform will sit on top of the ad exchanges and demand-side platforms to clear trades through those systems. “We are testing DSP relationships right now as well so you’ll see us working on that over the next 12 months.”

Armstrong also offered a cautious outlook for the months ahead, despite the recent improvement in online ad spending overall. “The external market continues to pick up steam and advertisers are doing more advance planning for their budgets,” he said. “On an individual customer basis, we’re still making changes. I don’t know what the expectations are going to be moving forward. It will probably move up and down over the next six months. In general, the ad market is doing pretty well. We’re going to hustle as fast as we can to get into the flow of what the market is doing. The process of fixing AOL is still going on.”