AOL Layoffs: More Than 1,000 Staffers Let Go in Restructuring Effort

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AOL (AOL), the parent company of DailyFinance, laid off more than 1,000 employees this week, concluding the first round of a major corporate restructuring effort designed to cut costs and streamline its business operations. The widely expected layoffs were necessary, the company said, after a voluntary buyout program late last year fell short of staff-reduction targets.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% Last month, AOL was spun off from Time Warner (TWX) after 10 years when it was a subsidiary of the entertainment giant. In 2000, AOL, riding high on its early success as the internet access leader, purchased Time Warner in a blockbuster $160 billion deal that was supposed to create a new-media titan designed for the internet age.

That experiment failed spectacularly. Now, under CEO Tim Armstrong, AOL aims to shed assets that don't fit into his ambitious vision to become the global leader in online content and display advertising.

The First Painful Step

The staff cuts represent the conclusion of Project Everest, a companywide initiative to identify cost-savings and tighten AOL's strategic focus. The layoffs are the first painful step in what's sure to be a long, difficult turnaround process, after nearly a decade of neglect under Time Warner.

Armstrong, the top advertising executive at Google (GOOG) prior to taking the reins at AOL, has garnered praise for his bold vision of a global, scalable advertising juggernaut driven by nearly 100 sites covering everything from politics to finance to sports to cars. For Armstrong, the challenge is steep, and Wall Street analysts aren't expecting a miracle soon. "AOL is a company with significant challenges ahead in all of its business segments," Ben Schachter, an Internet analyst at Broadpoint AMTech, wrote in a note to clients when the company went public in December.

In November, AOL announced that it planned to decrease its global headcount of about 6,900 employees by a third -- a staff reduction that would entail a one-time $200 million charge. About 1,100 employees took a voluntary buyout, leaving more than a thousand additional positions to be eliminated involuntarily.

Hard Questions

The first of wave of layoffs began in Europe on Monday. On Tuesday afternoon, affected employees at AOL's headquarters in Dulles, Va., and at its offices in New York City began meeting with supervisors and learning the bad news.

AOL's content-producing divisions were largely spared. "We evaluated our competitive position and product portfolio in every market – and we asked the hard questions about areas that were no longer core to the strategy and our profit profiles in the businesses and countries where we operate," the company said. "For many of the employees impacted in the U.S., Wednesday will be their last day in the office."

With Project Everest completed, AOL can focus on its newly defined core mission of creating world-class content to drive a global web advertising business. A central part of the company's strategy revolves around Seed, an online application that lets qualified users create content about popular subjects, which can then be published online. AOL lured Saul Hansell, a longtime technology reporter at The New York Times, to lead that effort.

An Aim of Long-term Growth

Layoffs are always painful, but in many ways, Armstrong's heavy lifting has only just begun -- and it will take time for the company to grow into his vision. "Though we like management's vision for the aspects of the business it can control (advertising), we expect the strategy to take one-plus years before it begins to translate into positive user/advertiser metrics," UBS internet analyst Brian Pitz wrote in a note to clients last month.

AOL shares closed at $26.24, up more than 4%, on Wednesday.
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