The Case for an AOL Renaissance

As the first decade of this century comes to a close, many of us are looking back and, depending on our experiences, celebrating the good fortune the last 10 years have brought or simply shaking our heads and preparing to move on. If you’re in the latter camp, cheer up. You probably didn’t have it as bad as AOL (s aol).

America Online stood at the center of the fledgling online world in 2001 when Time-Warner (s twx) paid $156 billion in stock for it, a deal now considered the worst of the decade, if not of all time. Over the years, revenue deteriorated while net losses came and went. One waggish analyst put it well when he called the merger “a nine-year adventure akin to a marathon through the mud.”

But that’s all history now. AOL is an independent company trying to write a new chapter in its history. It received (yet another) new CEO in Tim Armstrong in March and, as of this week, a brand-new board that includes such veterans as VC Bill Hambrecht and Richard Dalzell, Amazon’s (s amzn) former CIO. It also has longstanding ties with big advertisers and a growing stable of seasoned writers on its blog network.

So while the coverage of this week’s spinoff from Time-Warner has focused on AOL’s wretched decade and its daunting prospects for the future, there are reasons to think that, if it does several key things right, the company has at least a chance of being successful again. Nowhere near as successful as it was in the 90s, but successful as in an online media company with modest profit growth.

Here are some opportunities, along with the risks each entails.

1. Become a leader in web content.

Why it might work. The operative meme here seems to be the “Time Inc. of the 21st Century.” From business site Daily Finance to many other properties celebrity gadfly TMZ, AOL employs 500 full-time journalists and 3,000 freelancers. That could be a sturdy platform for ads once spending recovers.

Why it might not. Web portals have always shunned original content as too costly and risky. Yahoo’s (s yhoo) experiments have been mixed at best. What’s more, online advertising is in a state of painful flux, with no clear business model for future growth.

2. Exploit the Google-Bing rivalry.

Why it might work. Because Microsoft hates Google so much, and there are fewer ways to deliver Google a big bruise than to steal away AOL.

Why it might not. Google may bail anyway. The arrangement, which is set to expire in a year, may not have been as lucrative as Google was hoping.

3. Refurbish the brand.

Why it might work. The brand value really has nowhere to go but up. If Time Inc. has long been a valued name in news, AOL will need to become synonymous with quality content.

Why it might not. AOL’s new branding effort is off to a lame start. Also, most of its blogs aren’t perceived as AOL sites. How many TMZ readers know it’s affiliated with AOL?

4. Go mobile.

Why it might work. The market for mobile ads is still nascent and developing, with no clear leaders yet dominating it.

Why it might not. The company is hardly visible in the mobile web. Of two interviews I saw with Tim Armstrong last week, he only mentioned the mobile space once –- and it was just in passing.

It’s nearly impossible to overstate the challenges that still face AOL. It must execute on many of these risky initiatives while undergoing a wrenching and costly turnaround (restructuring costs will reach $283 million), repay debt (AOL said Friday it received a one-year $250 million credit facility from Bank of America) while placating investors with strong financials.

AOL’s path to relevance is clear. The only problem is, the path is one that very few companies could ever navigate.