Heads Roll at AOL--Is There an Upside?

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AOL made headlines on Thursday by filing plans to buy out one third of its staff (some 2,500 employees). The number comes as part of AOL's massive efforts to reposition itself as a media powerhouse. This means sundering its unholy union with Time Warner, jettisoning non-essential brands, and narrowing its focus to online journalism. In that context, tech bloggers were split on whether the huge layoffs would help get AOL back on course:

  • Stopgap at Best Jon Friedman at MarketWatch says that the layoffs are a one-time cash grab, a temporary solution to a much bigger, ongoing problem: how to revitalize AOL's brand. As he puts it "AOL is associated with the dial-up age, a carefree, bygone time compared with the go-go digital generation of today. If you really want to hurt AOL's feelings, you could sneer: That company is so 20th century! And you know what? It really is." He agrees that the company needs to forge a new identity, but says it "has a lot to prove" in that regard.
  • Will Help AOL 'Shed Dial-Up Cocoon' The Atlantic's own Derek Thompson commends AOL for undertaking a necessarily "bold strategy" by attempting to build a viable journalistic enterprise, but is hesitant to believe it will smoothly click into place given AOL's history. "Dial-up still makes up about half of AOL's revenue. That's a lot of revenue to make up with a new business model that basically relies on making online journalism work...I'm not going to count out Tim Armstrong or the company, but as a 33 percent layoff mandate suggests, it's going to be a rough transition period."
  • Might as Well Bet on Earthlink ZDNet's Larry Dignan concentrates mostly on the tenure of AOL's relatively new CEO Tim Armstrong, who previously acted as President of Google Americas Operations. He notes that AOL's plan to shift its reliance on dial-up business to ad sales hasn't worked out. His pessimistic recommendation? "You'd be better off buying shares of EarthLink than AOL...With EarthLink you at least get a decent dividend. Time Warner shareholders as of Nov. 27 get one share of AOL per 11 shares of Time Warner (fractional shares will be sold in the open market). Depending on how AOL trades, it could realistically make sense to ditch the AOL and buy the EarthLink--assuming you really want in on the not-so-hot dial-up business."
  • Necessarily Evil The Business Insider's Jay Yarow thinks that AOL did about the best that it could given the circumstances, and is setting itself up well for a possible recovery: "Our analysis suggested AOL needed to reduce headcount by at least 2,000. Early reports pointed to a figure of only 1,000-1,500, which wouldn't have been enough. By laying off 2,500, [CEO] Tim [Armstrong] is cutting deep enough that he is giving AOL the proper cost structure in one brutal move. This reduces the likelihood that he'll have to have to do it again."
  • Can't Please Everyone Peter Kafka of All Things Digital says that AOL had duly warned of its intentions to make deep staff cuts. He also thinks that the company is trying to walk the tightrope between investors and employees by offering those who walk now a more generous sum. In the end, however, its investors that are the main priority: "This is lousy news for employees, who are faced with a 'jump now or wait to be pushed' decision, but it is designed to cheer investors: AOL says the cuts will drop its annual operating expenses by $300 million. Through the first nine months of this year, AOL's operating expenses ran around $1.8 billion." He also credits CEO Tim Armstrong for having the decency to forego his own annual bonus, even if it is for appearances sake.

This article is from the archive of our partner The Wire.