AOL CEO fires off lay-off warning

Time Warner’s AOL is to lay off 10% of its 7,000 employees worldwide because of the struggling economy and decline in advertising revenues.

AOL CEO Randy Falco has sent an internal memo confirming that the lay-offs will be rolled out in the coming few quarters. US workforce reductions will be completed by March. He added that the company will eliminate merit pay increases in 2009.

Falco writes: "Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars. As a result, we will be reviewing our entire organisation to further align resources and expenses against the real revenue opportunities in this difficult market. Part of this will involve consolidating groups to gain efficiencies that will unfortunately lead to head-count reductions."

The deal is not expected to affect India. AOL India told IT Examiner, "This is a worldwide phenomenon now. Every company is looking to come up with better profitability and shaping up operational aspects." Senior management officials at AOL India are confident that the lay-offs will not affect its operations India, as the country has a cost advantage compared to locations like the US.

Operational expenses, like frequent trips to the US, have been cut. But there is an intense insecurity among the AOL employees here. AOL had a similar reduction earlier, but it had hardly any impact on India.

While AOL may be considering a sale of Bebo, for now the site is still the centrepiece of its People Networks business.

Falco said, "We combined Bebo with our longtime community assets AIM and ICQ as well as newer acquisitions Goowy, Yedda and Social Thing, to build People Networks, gaining AOL a foothold in the critical social media space, with more announcements to come on the next phase of development in both the social media space and in the integration of social and publishing capabilities."

AOL has been talking to Yahoo and Microsoft about integrating its advertising business with either or both of those companies for a broader reach. Earlier this month, Time Warner Chief Executive Jeffrey Bewkes met Microsoft CEO Steve Ballmer and Yahoo Chairman Roy Bostock at Time Warner's New York headquarters.

The latest move from the company seems to indicate that potential partners are concerned about profitability and operational aspects in these hard times for the online advertising market.

The valuation of the deal is also on the decline. Last week Google recorded a $726 million write-down of its five per cent stake in AOL. The writedown implies that AOL is now valued at around $5.5 billion. In 2005, Google valued AOL at around $20 billion. X