AOL to Cut One-Fifth of Workforce

Time Warner's Internet unit AOL will eliminate 2,000 jobs as part of an ongoing restructuring to better focus on boosting online advertising, according to a memo obtained Monday by Reuters.

The cuts, which begin on Tuesday, amount to about one-fifth of AOL's global work force and are spread across operations in the United States and in Europe, where the company has sold off its Internet access businesses.

AOL plans to boost investment in higher growth areas such as advertising and new international regions, AOL Chief Executive Randy Falco said in the memo to staff.

Falco said AOL

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[TWX  Loading...      ()   ] will launch in seven new countries this year and will operate in 30 countries by the end of 2008.

Some unidentified senior executives will leave as part of the restructuring.

The cuts come after AOL ratcheted down online ad growth expectations for the current year at the end of the second quarter amid a realization that marketers are increasingly relying on third-party networks to buy ad space on Web sites.

The surprise sparked another round of complaints from Wall Street analysts and investors demanding the split-off or sell-off of the unit. The company has said it has no plans to do so just yet.

The new management team led by Falco, a former NBC Universal Television Group president, has been reshaping the company to adjust to the new realities.

Since his arrival last year, AOL has bolstered its advertising operations with a slew of acquisitions that include behavioral targeting company Tacoda, video ad company Lightningcast and global ad-serving company ADTECH.

Falco has also helped oversee a rebuilding of the AOL.com site's key channels in news, food, finance and entertainment, with a renewed focus on e-mail services and the AOL Instant Messenger.

The acquisitions, including those that occurred prior to Falco's arrival, have added between 400 to 450 new employees, who are not expected to be cut in the current round of layoffs, one source familiar with the plans said.

In September, the company created Platform A, a new division that brings together its collection of ad divisions including Advertising.com and moved AOL's corporate headquarters to New York to be close to advertising capital Madison Avenue.

On Monday, Falco told employees the company is now focused on three main areas, Platform A, the AOL publishing business and online access services, which continued to attract just over 10 million subscribers at the end of the second quarter.

"We're only a year and a month into our transformation, and the turnaround has been dramatic," Falco said in the memo. "We're now in a position to win as an advertising-supported business."