AOL to Cut 20 Percent of Workforce, 750 People Locally
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Originally published at 11:50 a.m., October 15, 2007
Updated at 10:06 p.m., October 15, 2007
AOL will begin handing out pink slips Tuesday to 20 percent of its global workforce as executives intensify their effort to transform the company from a subscription Internet provider to an online advertising powerhouse that can compete with Google and Yahoo.
News of the layoffs, which will affect about 2,000 people, had long been rumored on the Internet and came in an e-mail memo to employees from chief executive Randy Falco. In it, he called the layoffs “the most difficult step, but a necessary one” for the company’s realignment.
AOL employs 10,000 people worldwide, with about 4,000 based in Dulles. The layoffs will affect about 1,200 U.S. employees, including about 750 in the Washington region. The cuts are expected come over the next couple of months.
“Everyone impacted by this reduction deserves our thanks and respect for their contributions to the company,” Falco wrote in the memo. AOL executives would not provide specifics on which departments would be most affected.
The layoffs follow an announcement last month that the company would relocate its Dulles headquarters to New York City, which would put it at the center of the advertising industry. But AOL’s pending move, along with Sprint Nextel’s recent troubles and MCI’s merger with Verizon Communications, has prompted some to question whether the region is losing its cachet as a technology hub.
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America Online
In April 2007, AOL President and Chief Operating Officer Ron Grant addressed the media in Bangalore, India. (FILE PHOTO) (Dibyangshu Sarkar/AFP/Getty Images)
AOL Chairman and CEO Randy Falco speaks during the Reuters Global Technology, Media and Telecoms Summit in New York on May 16, 2007. (FILE PHOTO) (Keith Bedford/Reuters)
AOL Chairman and CEO Jonathan Miller along with AOL Vice Chairman Ted Leonsis -- who is the majority owner of the Washington Capitals, Washington Mystics and minority owner of the Wizards -- met with The Washington Post to discuss AOL's new business model in 2006. (FILE PHOTO) (Leslie Walker/Washington Post)
An employee walks through one of the doors inside the lobby of AOL headquarters in November 2004. (FILE PHOTO) (Joe Raedle/Getty Images)
This 2006 photo shows the annual company volunteer day at AOL headquarters in Dulles. AOL employees packaged more than 2,000 bags for The Red Cross, Loudoun Family Services, Loudoun Literacy Council, and Emmaus Services for the Aging in D. C. (FILE PHOTO) (Tracy A. Woodward)
YouthAIDS Global Ambassador Ashley Judd spoke to more than 300 America Online employees at the company's headquarters in 2005 to promote HIV/AIDS education and prevention. (FILE PHOTO) (Tim Nguyen/AOL)
AOL and Advertising.com executives gather at AOL headquarters in 2004 to talk to the media. The companies announced that AOL had agreed to pay $435 million to acquire Advertising.com, a provider of interactive marketing services. In photo, left to right: Advertising.com CEO Scott Ferber; Advertising.com Chief Product Officer John Ferber; AOL Vice Chairman Ted Leonsis; AOL Chairman and CEO Jonathan Miller. (FILE PHOTO) (Rick Kozack for AOL)
The photo for this illustration was taken in New York in 2006. Here, a collection of compact disks containing promotional software for AOL's Internet service is shown. (FILE PHOTO) (Mark Lennihan/Associated Press)
In 2003, then-Virginia Gov. Mark Warner speaks during gathering at AOL headquarters in Dulles prior to the ceremonial signing of an anti-spam bill. Shown listening to Warner is, from left: AOL executive Ted Leonsis; president of the Northern Virginia Technology Council, Bobbie Kilberg; Virginia Attorney General Jerry Kilgore and Virginia State Rep. Jeannemarie Devolites. (FILE PHOTO) (Rich Lipski)
This 2002 photo shows the outside of AOL headquarters in Dulles. (FILE PHOTO) (Kenneth Lambert/Associated Press)
In this Dec. 11, 2001 photo, Robert Pittman, chief operating officer of AOL Time Warner, presents his keynote address to Internet World Fall 2001 at New York's Javits Convention Center. (FILE PHOTO) (Richard Drew/Associated Press)
This photo taken Feb. 29, 2000, shows AOL Chairman and CEO Stephen Case, left, and Time Warner Chairman and CEO Gerald Levin as they prepare to testify before the Senate Judiciary Committee in Washington, D.C. about the merger of AOL and Time Warner. (FILE PHOTO) (Mario Tama/AFP)
AOL CEO Gerald Levin is shown speaking before the House Commerce Telecommunications Subcommittee in Washington in this September 27, 2000 photo. (FILE PHOTO) (Brendan Mcdermid/Reuters)
In this 2000 photo, Steve Case, left, Chairman and CEO of America Online, hugs Gerald Levin, Chairman and CEO of Time Warner, following a press conference in New York during which the two companies announced that AOL would buy Time Warner for about $163 billion in stock. At the time, the merger was considered to be the biggest business deal in history. (FILE PHOTO) (Mike Segar/Reuters)
This 1999 photo shows James V. Kimsey, founding CEO and Chairman Emeritus of America Online. (FILE PHOTO) (Philip Bermingham Photography)
In this March 13, 1995 photo, Microsoft CEO Bill Gates, left, and America Online CEO Steve Case address the Microsoft Professional Conference for the Internet. (FILE PHOTO) (Lou Dematteis/Reuters)
Signs inside the lobby of AOL's Dulles headquarters are seen in this 2004 photo. (FILE PHOTO) (Joe Raedle/Getty Images)
The lobby inside AOL's headquarters is seen in Dulles. The firm, which is owned by media giant Time Warner, has seen its number of subscribers shrink in recent years amid fierce competition. (Joe Raedle/Getty Images)
“AOL has hired great people,” and many hope the laid off workers will stay in the Washington area, said Phil Bronner, a partner at Novak Biddle Venture Partners, a Bethesda venture capital firm that has invested in several startup companies founded by former AOL executives.
“They tend to really know the Internet landscape and have great relationships with other people in the field,” Bronner said, noting that many young Web companies are eager to hire people who have worked at AOL.
At its peak, AOL employed about 5,200 people in the Washington area. With the latest round of layoffs, the company will have about 3,250 workers in the area. In December, AOL completed a layoff of nearly 600 employees locally and 5,000 worldwide as part of a major restructuring.
Washington’s economy has weakened since 2000 when the technology industry was at its strongest.
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The economy in the Washington region today is strong and diverse because of defense contracting, said Robert D. Atkinson, president of the Information Technology and Innovation Foundation in Washington. “I think the tech economy has moved on,” he said, noting there are a host of new Internet startups that former AOL employees have started over the years.
The latest round of layoffs at AOL makes up less than 1 percent of Loudoun County’s total workforce, said Larry Rosenstrauch, director of the county’s department of economic development. But the 3,000 jobs created annually in the county that are suitable for technology workers provide laid off AOL employees with potential new positions, he said. Falco said AOL’s aim is to try to compete against online advertising powerhouses like Google.
“Put simply, my vision for AOL is to build the largest and most sophisticated global advertising network while we grow the size and engagement of our worldwide audience,” he wrote in yesterday’s memo.
AOL, which in the 1990s grew by offering Internet-service subscriptions, is now shedding that business and trying to get a stronger foothold in the growing online advertising market. So far, however, AOL’s online advertising growth has been overshadowed by that of its rivals.
According to research firm eMarketer, online advertising revenue for 2007 is projected at $21.4 billion. Of that, Google leads with a 28.9 percent share. Yahoo’s share is almost 16 percent. AOL and MSN each have a share of about 6.6 percent.
The layoffs could help AOL compete more by freeing up some money, said David Hallerman, an analyst with eMarketer. But “they’re still not going to overtake Google or even Yahoo,” because their recent investments in advertising will still take time to bear fruit, he said.
Over the past year, AOL has bought several online advertising firms focused on various technologies, including mobile phones and Internet video. Last month, it acquired Tacoda, a company that attempts to match advertisements to consumers’ online behavior. It previously acquired Lightningcast, a video-ad company in the District; Advertising.com, an online ad company; and Third Screen Media, a mobile-phone ad company.
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