AOL to axe 20 per cent of workforce

Former internet giant planning massive staff cutbacks as owner Time Warner readies it for a sell-off or repositioning.

AOL, the fallen internet service provider owned by Time Warner, will cut 2,000 jobs as part of an extensive restructuring plan.

The company hopes that the plan will allow it to boost online advertising and move even further away from the low-profit and highly commoditised world of internet access, according to a leaked memo. Time Warner is also believed to be considering a sale of the remaining AOL business.

The cuts, which begin today, amount to about one-fifth of AOL's global work force and are spread across operations in the US and in Europe, where the company has sold off its internet access businesses. Time Warner sold the AOL UK access business to Carphone Warehouse in October 2006.

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 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 realisation 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 behavioural 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 redundancies, 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."

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