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AOL Cuts More Products Developed in Dulles

AOL's Kevin Conroy had hailed Bluestring as innovative.
AOL's Kevin Conroy had hailed Bluestring as innovative. (Rick Maiman - Bloomberg News)
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By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, July 26, 2008

AOL is slashing more products -- including some that had been promoted as on the cutting edge of the company's future -- as part of its effort to cut costs and focus resources on what is working for the beleaguered Internet giant.

The moves could further dilute AOL's presence in Dulles, where employees have been buffeted by several rounds of layoffs. The Northern Virginia office already lost attention this year when AOL moved its headquarters to New York to focus on its online advertising operations. The latest reorganization involves the products team headed by Kevin Conroy, an executive vice president in Dulles.

"We have been focused on doing things differently," Conroy said in an interview yesterday. "The things that are necessary to transform a business don't come easily."

AOL is shuttering Bluestring, a site that scours the Web for photos, videos and music and stores them in one place online. As recently as this winter, Conroy said the site was an example of one of the innovative products that would help build AOL's audience. AOL is also shutting down Xdrive, an online storage site, and AOL Pictures, a photo-storage site.

"These consumer media storage products haven't gained sufficient traction in the marketplace or the monetization levels necessary to offset the high cost associated with their operation," Conroy wrote in an e-mail to staff announcing the cancellations earlier this month.

Conroy called the overall performance of AOL's products "mixed."

"There was a time at AOL when the strength of our aggregate portfolio of products more than compensated for the weakness of an underperforming product," Conroy wrote. "The realities of the industry and market shifts in online advertising no longer make that possible. Simply put, every product makes a direct impact on our bottom line."

Lost among the news of cuts have been a number of positive developments for AOL -- a fact that has frustrated top AOL executives. AOL has experienced strong growth in several areas: Its e-mail products have overcome Microsoft's Hotmail as the No. 2 online e-mail service, after Yahoo Mail. Truveo, its new online video search, is getting tens of millions of visits per month. And AOL's radio application and instant messenger have rocketed to near the top of most-downloaded lists for Apple's new iPhone.

Over the past year and a half, AOL has canceled about 50 products. The problem has been that despite investments in new sites -- and spending more than $1 billion to buy six ad companies -- advertising growth has remained flat.

In the first three months of the year, AOL's advertising revenue grew 1 percent. By contrast, online ad sales grew 18.2 percent industry-wide, according to the Interactive Advertising Bureau.

The cuts have caused confusion at AOL's Dulles office and elsewhere. Company executives acknowledged as much. In a separate e-mail to quell concerns about AOL shutting down an array of blogs, the company admitted that "our recent discussions and communications about belt-tightening and cost-management have been disruptive to our normal routine." The company then spelled out a plan to slow posting of new blog entries to cut costs.

AOL is under pressure to cut costs by its parent company, Time Warner, which has openly acknowledged that it would consider spinning it off. Executives said the shutting down of products had nothing to do with those plans and, rather, was part of a long-running effort to focus on "essentials."

Tricia Primrose Wallace, AOL's top spokeswoman, said Dulles will remain a center for the company's product development.

"AOL continues to invest significantly in our products, and we have over 1,000 developers located around the world," she said. "But Dulles is a significant product hub. It's one of the leading places we do products, and those products are doing really well."

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