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AOL Lays Off 450 At Dulles Office
Cutback Smaller Than Predicted

By Sara Kehaulani Goo and Kim Hart
Washington Post Staff Writers
Thursday, December 14, 2006

AOL laid off more than 450 employees at its corporate headquarters yesterday as part of plans announced earlier this year to cut costs and change the company's business strategy.

The Dulles company said it was not cutting as many jobs locally as originally anticipated. In August, AOL executives said that about 1,000 of the 5,000 jobs to be cut worldwide would be local. Including yesterday's cuts, AOL has eliminated fewer than 600 positions in Northern Virginia.

"In August, we were making a preliminary estimate based on very early information about how the company's new strategy would affect our structure," said Andrew Weinstein, a spokesman for the company. "When we worked through the implications of the new structure, we found there were fewer jobs on the Virginia campus that were impacted than expected."

The layoffs come at a time when AOL is undergoing perhaps its biggest challenge ever -- to transform the business plan that built the company. AOL now offers its services free through its Web site and is moving to make its money from advertising instead of subscriptions.

Last month, parent company Time Warner appointed a new chief executive for AOL, former television advertising executive Randy Falco. Longtime AOL vice president Ted Leonsis has said he plans to leave his job at the end of the year.

Analysts seem pleased with AOL's performance so far, but now that costs have been cut, they say, AOL must aggressively build its audience and advertising revenue.

AOL also is trying to shed its image as a company with poor customer service after some members complained that AOL had made it difficult for them to cancel their subscriptions. Yesterday, AOL reached a settlement with the Florida attorney general over service complaints and agreed to reimburse some customers.

Next year "is going to be the key . . . for Randy Falco and his new deputies to demonstrate they can translate AOL's successful traffic migration to the kind of growth that we've come to expect from other online companies," said Tuna Amobi, senior entertainment equity analyst at Standard & Poor's. "There's still some uncertainty in our minds how their strategy is ultimately going to shake out."

AOL said most of those laid off yesterday had worked on efforts to sign up Internet access subscribers. Falco sent employees a memo saying the cuts were the final round of the previously announced layoffs.

"I realize that this period of change has been difficult and distracting," he wrote. "And I am impressed by the professionalism and steadfastness that you and your colleagues have demonstrated as this process has run its course."

The mood at AOL's large suburban campus was gloomy, even though employees said they knew some cuts were coming. Some employees said layoffs have become routine, especially at this time of year. In 2004, AOL let 750 employees go just before the holidays. The company also laid off 700 people in fall 2005.

AOL employees commiserated yesterday by passing around a link to photo Web site Flickr showing a man wearing a series of T-shirts with different messages under the banner "AOL, The Third Annual Christmas Layoff 2007."

In a sign of just how low morale has sunk, some employees hoped to be laid off "to step off the treadmill and get into something else," said a former AOL executive who spoke on condition of anonymity because he still has business dealings with AOL management. AOL said workers laid off yesterday would be paid through February. After that, they will receive severance equal to two months' salary, the company said.

With the layoffs, AOL's has about 14,000 employees, with 4,000 in Northern Virginia.

Andrea Spiegel, who was AOL's vice president of audience programming operations and planning until she quit in June, said employees have learned "to expect layoffs every six months or so."

Spiegel stays in touch with her former colleagues and said most of those laid off saw it coming. But some were caught by surprise. "In general, the mood is mellow. The packages are good, so that helps a lot," she said. "There are always questions about why this person, why that person. Mostly, though, a lot of people are just glad it's over."

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