Armstrong spoke at length about AOL’s marketing strategies (it wasn’t their fault this was mostly what they talked about – this is what reporters were asking about) and how Project Devil, their advertising platform, is changing advertisements into actual site content. Mentioning how companies like Proctor & Gamble and Unilever have already adopted Project Devil, Armstrong said, “We believe most of the clients in the world, through their agencies, could extend their content through advertising.” He continued, “Project Devil is an enterprise system that would go inside the holding companies where we’re taking our software and user-interface and basically white labeling it for the holding companies.”

Armstrong also talked about the success of Patches, AOL’s platform for providing local news coverage to individual areas. Although it wasn’t mentioned in the press conference earlier today he did confirm that it had been an overall success thus far. Similar to his explanation for AOL’s general success, he said Patches has been done well because of their organizational strategy and sales teams. AOL has implemented 863 Patches overall, each of which they bunch into bundles of 30 to assess the quality and success of each Patch.

When addressing how Patches became profitable, Minson added, “We don’t want Patches to be a success based on an individual basis because we could theoretically muscle any Patch into being profitable.” He said that the true value of Patches “should be considered within Patches’ overall success.”

Eventually, someone was going to bring up the big jaundiced bruise on AOL that is TechCrunch and the defection of employees that occurred last year. Deflecting the suggestion that the news site was in “chaos,” Armstrong redirected the focus to TechCrunch’s “tremendous year” and pointed out some highlights like the conference they hosted in Beijing and the upcoming Crunchie Awards. “Chaos around TechCrunch,” he said, “is a limited factor because the site has acquired a lot of value.” He went on to explain how TechCrunch has added more talent to their staff and has been receiving “strong interest” from advertisers.”

In an accompanying statement, AOL Chairman and CEO Tim Armstrong expressed satisfaction with the company’s performance and said they “took a large step forward in Q4.” He added, “I am very pleased with the way we ended the year. Our Q4 results highlight AOL’s ability to methodically improve our consumer offering and financial performance.”

Despite besting Wall Street’s expectations, AOL’s subscription revenue was down 18% from where it was last year: $194.6 million in Q4 2011 versus $235.9 million in Q4 2010. Additionally, subscription revenue was down 22% for the overall year, as well, with $803.2 million in FY 2011 versus $1,023.6 million in FY 2010.

While it AOL’s operating income was down considerably since last year at $124.6 million, the figure wasn’t as low as Wall Street’s prediction of $101.3 million.

Some other highlights from the release:

Armstrong and AOL CFO Arte Minson are scheduled to take questions from reporters later today during a press call to discuss the implications of the release.

Arrington’s post was particularly interesting given that AOL is an investor in his Crunchfund.

Now, The Wall Street Journal is reporting that one of AOL’s largest shareholders, Starboard, sent a letter to Armstrong saying that AOL’s efforts to become an ad-supported media company are “destroying shareholder value.”

Business Insider has posted the letter in its entirety, along with this response AOL reportedly issued to Starboard:

Over the last two years AOL has significantly reduced costs, sold non-core assets, made significant investments for our future, and also recently repurchased over 10% of outstanding shares. AOL has a clear strategy and operational plan to provide our consumers and customers with exceptional value, which we believe will lead to the creation of shareholder value. Our Board and management team remain firmly committed to creating value for all shareholders and we will continue to aggressively execute on our strategy in 2012 as we continue the turnaround of AOL.

The Starboard letter was a lot longer. It’s conclusion was:

We strongly believe that AOL is deeply undervalued and that there are opportunities to substantially improve overall operating performance and valuation based on actions whithin the control of management and the Board. AOL’s stock price has underperformed over almost any time period and we believe it is time for the Board to take immediate action to address the significant concerns highlighted in this letter.

As one of AOL’s largest shareholders, our interests are directly aligned with those of shareholders. We would appreciate the opportunity to engage directly withg you and the Board and would request an in-person meeting to discuss our views on how to enhance value for AOL shareholders. We look forward to a constructive dialog as we look to ensure that AOL is run with the best interests of all shareholders as the primary objective.

Update 2: Peter Kafka at AllThingsD is reporting that Arrington is indeed an AOL employee, though he no longer works for AOL’s Huffington Post Media Group. He writes: “That’s consistent with what the company said yesterday, but contradicts what AOL HuffingtonPost spokesman Mario Ruiz told the Business Insider this morning. But since Sullivan reports directly to AOL CEO Tim Armstrong, we’ll take her word on this.”

Here’s the TechCrunch post about the whole thing, finally. Written by Paul Carr.

Reports came out from Fortune and the New York Times that famed blogger and TechCrunch founder Michael Arrington is launching a new venture fund to invest in early-stage startups.

According to Fortune, his partner is Patrick Gallagher of VantagePoint Venture and the goal is to raise about $20 million.

While the NYT reported that Arrington “will take a backseat role at TechCrunch, which is hiring a new managing editor,” and that “He will continue to report to Arianna Huffington, who runs AOL’s media properties,” Henry Blodget is reporting that Huffington said in an email that Arrington isn’t being paid by TechCrunch, won’t report to TechCrunch editors and won’t export to Huffington or other AOL Huffington Post Media Group Personnel.

Arrington himself has been pretty quiet about his plans. His tweets since the news came out have consisted of:

There has been plenty of outside chatter, however. Here are some tweets from others:

Jeff Jarvis lists “a few things to keep in mind” regarding Arrington in a Google+ post:

• Arrington started as a VC who happened to write a blog to keep track of companies he was interested in for investment. It turned into a media property by accident (but with much hard and purposeful work).
• Arrington has long rejected the title “journalist.” At Disrupt, I tried to get him to take on the uniform. He adamantly would not.
• NYTimesCo also invests in startups (including one where I am a partner, Daylife) and the NYTimes covers startups. NYTimes lab also created a startup with Betaworks (News.me). It, too, is in the business of startups.
• One difference: Arrington’s fund accepted capital from other VCs’ funds. An added layer of complexity, to be sure.

Robert Scoble says, “One thing, entrepreneurs will have a tough time with: He can be tough to work with if you aren’t very adept at PR and don’t know how to handle his personality. Getting questioned by him isn’t something that will be fun, either in a board meeting, or in public on a blog.”

That personality has been on public display in past Tech Crunch posts and tweetrs, where he has had plenty of “blog wars” for lack of a better term with other AOL staff (namely Engadget).

Swisher also had a whole lot more to say about the whole thing.

Note: The screenshot with the broken image on Arrington’s bio is real. Note 2: It’s not broken anymore. Probably meaningless, but still seems appropriate enough for a screenshot.

The development’s arguably a big win for the Huffington Post and AOL.  Twitter’s reputation as cutting-edge tech could do a lot to improve AOL’s image if any sort of partnership eventually results.  And Stone’s advice should be valuable on its own, considering his history of success.

That’s not to say Stone will try to make tons of money for AOL (or receive lots of cash in return for his services).  An official statement on the matter indicated that he’ll just “advise on social impact and cause-based initiatives, develop a platform to facilitate people doing service in their communities, rally other companies to invest in and deploy best corporate practices, and create and develop a video series spotlighting leading companies and executives at the forefront of philanthropy and corporate responsibility.”

Still, AOL might be able to put some of that information to use in other areas.

It sounds like Stone will have the ear of the highest-ranking person around, as well.  AOL CEO Tim Armstrong said in the same statement (which covered a few other topics), “I’m especially thrilled that Biz Stone will be helping us to refine one of our core goals: using innovative approaches to do good and give back while putting a spotlight on solutions.”

We’ll be sure to report anything interesting that occurs as a result of this development.

Along with that announcement comes the addition of some more editorial staff,  including Senior Media Reporter Michael Calderone (coming from Yahoo), Senior Reporter Trymaine Lee (coming from the New York Times), Senior Congressional Reporter Michael McAuliff (coming from the New York Daily News),  Senior Political Reporter Jon Ward (coming from The Daily – interesting in itself, given how new The Daily is), Business Reporter Bonnie Kavoussi, and Entertainment Reporter Lucas Kavner.

When AOL announced the acquisition of The Huffington Post, it put Arianna Huffington in charge of all AOL content and started The Huffington Post Media Group to encompass all content from both The Hufffington Post and AOL. With that, it shouldn’t come as much of a surprise that there would be some people losing their jobs. Last week, AOL CEO Tim Armstrong said more layoffs will occur due to the acquisition of the Huffington Post, but that they’d “do it thoughtfully.”

Bianca Bosker, Huffington Post Tech Editor Welcomes New Staff

“These new hires, which are only the beginning, demonstrate our commitment to great journalism,” said  Armstrong. “An outstanding team of talented editors, writers, and reporters — ranging from award-winning veterans to budding new journalism stars — will be at the heart of the Huffington Post Media Group. One of Arianna’s highest priorities is to build this first-class team across the many content areas covered by AOL and the Huffington Post, and to maximize the impact of their work on every platform, with great reader engagement.”

Since the  $315 million acquisition of The Huffington Post, AOL has lost President of AOL Media and Studios, David Eun and Executive Vice President, North American Sales, Mark Ellis, as well as a pair of editors at its popular tech blog Engadget.

News has also come out that AOL is buying hyperlocal blog service Outside.In to integrate with its Patch product.

It’s very interesting to see the progression of AOL over the last couple years. They have quickly gone from struggling Internet dinosaur (mostly conjuring up images of dial-up Internet connections and “you’ve got mail” sound bytes) to a high profile content company that seems to be dominating more and more of the web each month.

According to AOL, the combined entity of AOL and The Huffington Post will have a user base of 117 million unique visitors a month in the United States and 253 million around the world.

Indeed, total revenue decreased 26 percent compared to the fourth quarter of 2009, advertising revenue fell by the same amount, and free cash flow plunged by 38 percent, none of which is encouraging.

But the $596 million in total revenue AOL managed to report was still better than the $587 million analysts had forecast, and AOL reported earnings per share of $0.61 rather than $0.42.  Also, AOL had an explanation of sorts for all the negative numbers, citing "initiatives and comprises [sic]."

CEO Tim Armstrong explained in a statement, "I am very proud of what we accomplished in 2010 as we began the year with a significant restructuring of AOL and ended the year with a significantly improved balance sheet, a number of exciting new products and a new culture focused on winning.  We have set aggressive goals for ourselves in 2011 in pursuit of capturing the growing opportunity ahead of us."

Then one other interesting point is the fact that AOL sold its stake in video site Brightcove for $17 million during the fourth quarter.

AOL’s stock is now down 1.72 percent in early morning trading.

That increase is in part due to the fact AOL was able to report $563.5 million in total revenue, even though analysts thought the company would just report $557.0 million.  Also, thanks to the sale of Kayak and ICQ, AOL managed to report $171.6 million in profit – a 132 percent year-over-year jump.

This led CEO Tim Armstrong to state, "In Q3, AOL continued on the path towards better health through targeted acquisitions and smart dispositions, meaningful product improvements, site relaunches, and strategic partnerships, all of which will enable us to execute more quickly against our strategy."

Then a couple more positive things to note are the just-announced hirings of Curtis Brown and Erynn Petersen, who will serve as Senior Vice President of Engineering for AOL Media, and Vice President of Developer Evangelism, respectively.

Unfortunately for AOL, it did lose 24 percent of its subscribers between the third quarter of 2009 and the third quarter of this year, and revenue dropped by 26 percent.

Still, its stock is well ahead of the Dow, which is only up 0.08 percent so far this morning.

To be fair, Armstrong was nothing but polite when speaking about Google at the All Things Digital conference.  He confirmed that his company’s "starting with Google," and according to Scott Morrison, said, "Google has been [AOL's search] partner for close to a decade.  We know what works and doesn’t work.  Google knows what works and doesn’t work."

Armstrong also observed, however, "Both companies’ needs have changed."

Then here’s the most interesting part: Armstrong said that AOL has "more than two potential partners," which is an unusual way of describing a situation.  Google and Microsoft represent two much-talked-about options . . . the identity of AOL’s third (and possibly fourth) potential partner is harder to guess.

Is Yahoo trying to demonstrate its independence from Microsoft by making in a bid?  Does IAC want to give Ask a major shot in the arm?  Or is Armstrong just bluffing for the sake of better terms?  Feel free to speculate below.

Anyway, given the deadline AOL’s looking at, it shouldn’t be long before this matter is settled.

Armstrong didn’t go about this in a nasty or even slightly negative way.  According to Nicholas Carlson, he just said, "Google’s been a great partner.  They’re obviously going to get first dibs.  Microsoft and other people are very interesting partners as well."

Armstrong then continued, "I would expect us to be aggressive about the search deal and for us to be in a partnership that we care about for the next 5 to 10 years."

Google and AOL first sealed a search deal in May of 2002, so such a lengthy arrangement wouldn’t be too odd.  The difference is that the original deal wasn’t scheduled to last through the end of 2010.  Armstrong may be pushing for slightly better terms before he settles in with Google for the long haul, then, which would make sense.

Or, just maybe, AOL’s CEO is really ready to bet the farm on Bing, given that most people like its performance and Microsoft has deep pockets.

Related Articles:

> Rumor: AOL May Be Buying Mashable

> AOL Might Be Looking To Sell ICQ

> The New AOL Is Now Live