Falco, AOLs chief executive, and Chief Operating Officer Ron Grant will leave after a transition, Time Warner said in a statement yesterday. Armstrong joined Google in 2000 and most recently led its North American and Latin American advertising sales and operations teams.

“Were in the first phase of a fundamental shift thats happening in media, and AOL has a global brand,” Armstrong said in an interview. “Its clear that there are strategic areas that AOL can go into and be successful.”

AOL should focus on its advertising, content and people- networks businesses, said Armstrong, whose plan is to first spend time with employees. Time Warner CEO Jeffrey Bewkes split AOLs Internet-access and online divisions last year.

Google has held a 5 percent stake in AOL since investing $1 billion in 2005. Bewkes said in the statement Armstrong can “move AOL into the next phase of its evolution” and assist in helping the company determine the “optimal structure” for AOL.

“Its pretty clear that this is going to mean a new direction for AOL, which has sort of been in limbo for at least a year,” Andrew Frank, an analyst at industry researcher Gartner Inc. in New York, said in an interview. “The days of AOL as a beleaguered subsidiary of Time Warner are certainly numbered.”

Shrinking Sales

AOLs ad sales slid 18 percent in the fourth quarter, after a 6 percent decline in the third quarter and a gain of 2 percent in the second. The unit told employees in January that 10 percent of the workforce will be cut as advertisers curb spending.

Time Warner is still coping with the failed $124 billion combination with America Online Inc. in 2001. At an investor conference earlier this month, Bewkes said the company remains open to strategic combinations for AOL.

In December, Bewkes said Time Warner was having discussions with Yahoo! Inc., Google and Microsoft Corp. about a deal involving AOL, without elaborating. On a Feb. 4 earnings call, he said one option is spinning off all or part of AOL to shareholders. AOL started as a dial-up Internet pioneer in 1985.

“We believe the only reason that Armstrong would agree to run AOL is the ability to manage a public company of his own in the near future,” Pali Capital analyst Rich Greenfield in New York said in a report.

Time Warner, based in New York, rose 41 cents, or 5.2 percent, to $8.32 yesterday in New York Stock Exchange composite trading before the announcement.

Falco, a 31-year TV veteran at NBC, joined AOL in November 2006 and helped lead the transition to a business focused on online ads from a subscription service. He succeeded Jonathan Miller two months after AOL started offering its e-mail and software for free to broadband users.

At an event in New York in October 2007, Falco said his team was reinventing AOL and that it was “a brand worth fighting for.”

Grant joined AOL in 1997, and Falco promoted him to president and chief operating officer in 2006.

AOL last month appointed former Yahoo executive Greg Coleman as president of its Platform-A advertising business, replacing Lynda Clarizio after less than a year as sales shrank.

Armstrong is among the more senior executives to leave Google. Sheryl Sandberg, vice president of global online sales and operations, left Google last year to become chief operating officer of Facebook Inc., the social-networking company.

Link to Advertisers

“Tim Armstrong was kind of, to my mind, their connection to the world of advertising and Madison Avenue,” Frank said. “I cant help wondering if this means a faster transition for Google from a company that is centered on advertising to a company that is focused on its roots as a technology company.”

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