The AOL Exodus Effect

AOL's technology incubator, Greenhouse, has funded 30 or so companies, but only one -- financial information firm Motley Fool -- is based in the area.

Learning to Downsize

In September of last year, AOL announced that it would move to New York to be at the center of advertising world, which the company regarded as key to its future. At the time, Loudoun County officials were assured that the move would cost fewer than 100 jobs.

A month later, AOL said it was dismissing 750 employees at Dulles. Morale fell as employees waited for word on their fate. "Everyone shuts down, sits and waits. It stifles activity. It stifles creativity. Everyone is worried for their jobs," said Will Kern, a senior product manager who left AOL during the recent layoffs to join a local start-up.

The layoffs were not only demoralizing but reflected broader problems. Over the past few years, a new crop of Web companies has been emerging, taking advantage of the spread of broadband. They've included brand names such as Google, YouTube and Facebook. And they've all been on the West Coast.

To most outsiders, AOL was no longer seen as an Internet leader.

"If a student or venture capitalist put together a list of the 20 companies they want to think about as companies to look at or learn from, AOL would not be on the list," said Haim Mendelson, professor of electronic business and commerce at Stanford University who has studied the online giant.

Many former employees blamed bureaucracy inherited from Time Warner for stunting innovation. New ideas had to pass through a cumbersome internal review board, which stymied online mapping, voice technology and other projects.

AOL couldn't lure people with the promise of riches: Its stock was in the dumps, and in 2005 the company had stopped giving stock options to all employees. Senior executives looked around the region for talent, but found mostly engineers familiar with business software programming and government contracting, not cutting-edge Web applications. Dozens of creative, technical, sales and operating AOL employees decamped to Silicon Valley, New York and Boston, in search of more promising opportunities.

"If you worked at AOL after 2002, what would you have learned at AOL that you couldn't have learned at other places?" said Mark Walsh, an early AOL executive who is an active local investor. "What you learned was how to downsize."

Employees who had stuck with AOL through the ups and downs no longer marveled at the number of BMWs and Porches that filled the Dulles parking lot late into the night, symbolizing the company's success and the drive of its employees. Now they spoke of the "parking lot index," a measure of how few cars remained by early evening.