Change Is Tough, but Necessary, AOL Chief Says

CEO Randy Falco is trying to make AOL into a global Internet advertising firm that can compete with Yahoo and Google. Falco says such a shift means AOL needs staff with different skills.
CEO Randy Falco is trying to make AOL into a global Internet advertising firm that can compete with Yahoo and Google. Falco says such a shift means AOL needs staff with different skills. (By Helayne Seidman For The Washington Post)
By Frank Ahrens
Washington Post Staff Writer
Monday, October 22, 2007

NEW YORK -- When AOL chief executive Randy Falco was the No. 2 at NBC for all those years, he liked to call himself "the conductor": He made the trains run on time.

He still makes the trains run in his new job. But for 750 AOL employees let go last week, the trains run one way only -- straight out of the company's Dulles campus.

Falco, 53, took over AOL from ousted chief executive Jonathan Miller in November of last year. It's been a busy 11 months.

In December, Falco laid off 450 workers after initially saying that he did not anticipate layoffs. In the following months, he purchased several advertising-related companies, adding employees, and announced that he will move AOL's headquarters, the longtime cornerstone of Washington's tech community, to New York. And on Tuesday, he dismissed some 2,000 more AOL employees, including 750 at Dulles.

"It's hard for employees to grasp everything we're trying to do; it's hard on everyone," Falco said during an interview Thursday. "But it's necessary if there's going to be an AOL in the future."

Before Falco arrived, Miller sought to remake AOL by converting it from a dial-up Internet service provider into a free, advertising-supported content portal. He willingly shed millions of dial-up Internet subscribers, betting that advertisers would make up the losses and tried to create a broad content, e-mail and instant-messaging system. In some ways, he was the Mikhail Gorbachev of AOL -- a threshold between the new and the old and, as such, an inevitable casualty. Ad revenue soared but not enough to suit Time Warner, AOL's parent.

Falco is trying to radically and rapidly morph AOL into a global Internet advertising company, one that seeks to compete with Google and Yahoo. He sees AOL as having three components: Publishing, which includes popular AOL sites such as AOL TV; Platform A, the new umbrella for the Web ad firms that AOL has assembled; and the dial-up Internet access business, the foundation of AOL, which has 10 million subscribers, down from a high of 27 million subscribers in 2002.

Platform A is designed to deliver advertisements to a range of nontraditional Internet sites, such as Facebook, where users are increasingly clustering and that have been out of advertisers' reach. Platform A and the publishing division of AOL will "travel together," Falco said, which suggests they may be moving somewhere.

Much speculation has centered on whether Time Warner will spin off AOL. But that may be the wrong question. The right question may be: Will Falco split the dial-up business from Platform A and the publishing division? Falco acknowledged as a possibility that AOL's dial-up business may be sold someday to a company that already runs a dial-up Internet access business. Now that Falco is moving the AOL headquarters to New York, along with advertising and programming departments, Dulles will return almost exclusively to its original form: a dial-up business, which still has 3,250 employees.

Further, he added, there is a home for fellow-travelers Platform A and the publishing division within Time Warner -- so that portion of AOL may not spin off.

Falco thinks differently about the publishing side of the house than did his predecessor. Miller, for instance, once put on a Foo Fighters show at a Washington club and broadcast it on AOL to try to entice dial-up subscribers to switch to AOL high-speed Internet.

Falco says AOL's best chance to thrive is by helping people find Internet content, especially user-generated video.

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