By Sam Diaz and Kim Hart
Washington Post Staff Writers
Tuesday, October 16, 2007
AOL will begin handing out pink slips today 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 sent to employees yesterday 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.
"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 start-up 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. After the latest round of layoffs, the company will have about 3,250 workers in the area. In December, AOL let go 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.
Today's local economy 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 start-ups 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 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 cellphone-ad company.