AOL will slash up to 5,000 jobs worldwide, or just over a quarter of its workforce, as the struggling unit of Time Warner restructures in an effort to bring in more revenue.
"At a company meeting this morning, [AOL Chairman and Chief Executive Officer] Jon Miller told AOL's worldwide workforce of 19,000 people that within the next six months, it is likely that around 5,000 employees will no longer be with the company," AOL said in a statement Thursday.
Word of layoffs is no surprise as job cuts have been widely expected. Setting the stage for big changes to come, AOL last month put out word that it planned to announce a major new strategy, which it did on Wednesday, saying that it will not charge Internet customers for most of its content and services, including e-mail.
With AOL positioned as a portal site for high-speed users, Time Warner said that it expects to spend US$250 million to US$350 million by the end of next year to make changes and that half of what it spends will go to employee severance.
AOL has long been bleeding subscribers -- almost 1 million in the second quarter of this year -- who are turning to broadband Internet access offered by competing service providers. So, Time Warner is pinning its hopes for an AOL resurgence on robust online ad revenue, with its new free-services business plan looking more like competitors Google or Yahoo.
Job cuts are expected to be deep in Europe as AOL plans to sell various of its Internet access businesses in a number of countries, a source said. Also expected to be hard hit are the customer service and marketing teams of AOL's Internet access business, this source said.
An analyst cautioned that AOL must be very careful to pare down its Internet access support staff in a way that is proportional to the subscriber cancellations it expects.
If these dial-up access subscribers are abandoned and get the sense AOL is shoving them out the door, they will leave feeling resentful, said Joe Laszlo, a senior analyst with Jupiter Research. In turn, they will be averse to using free AOL services and content, which will hurt AOL's ability to generate advertising revenue, he said.
"AOL needs to make sure these dial-up subscribers are happy with the service all the way through until they decide to cancel and become broadband users," Laszlo said.
Indeed, AOL disclosed on Wednesday that its members make up 36 percent of U.S. monthly unique visitors to the AOL network of sites and services, but they generate 80 percent of the page views. This means that they have a disproportionate positive effect on the consumption of AOL online ads.
"AOL needs to keep those people as audience for its content and services" after they cancel their subscriptions, Laszlo said.