AOL’s Strategy Shift Calls for Trimming 5,000 Jobs
As it implements a major shift in strategy, Time Warner Inc.’s AOL unit said Thursday that about 5,000 jobs, or one-quarter of its worldwide workforce, would disappear in the next six months.
AOL Chief Executive Jonathan Miller told employees Thursday that the worldwide workforce of 19,000 would shrink to about 14,000, spokeswoman Tricia Wallace confirmed, declining to provide details of where and how the jobs would be eliminated.
Substantial job cuts are a natural outgrowth of the new strategy AOL unveiled Wednesday. Beginning in September, the online giant will stop marketing its Internet access business and will offer its popular e-mail and other services free of charge to broadband Web surfers.
AOL is trying to regain customers who disconnected when they migrated from dial-up to broadband service and were unwilling to pay simply for an e-mail address they could get free from their new provider.
Although AOL remains the largest Internet service provider with 17.7 million subscribers, its customer base has fallen from a peak of 26.7 million in September 2002.
Customer-service and marketing call centers will be closed as AOL’s subscriber base dwindles further. There are no call centers in California.
The 5,000 jobs that Miller referred to in a companywide webcast Thursday include workers at AOL’s dial-up Internet access operation in France. AOL said it is in exclusive negotiations to sell the business to the French telephone company Neuf Cegetel. AOL also may sell similar operations elsewhere in Europe, the company said during a conference call Wednesday.
Time Warner said Wednesday that it would absorb $150 million to $200 million of restructuring costs, including employee severance, by the end of this year.
As a result of the shift in strategy, AOL expects to lose hundreds of millions of dollars in access fees but is gambling that it can more than recoup that money through fast-growing advertising revenue from its AOL.com Web portal and through cost cuts that will reach $1 billion by the end of 2007.
“I think it’s the right strategy, but I’m not 100% convinced it will work,” analyst Richard Greenfield of Pali Research in New York said Thursday. A big unknown is how AOL’s competitors will react, he said.
In hopes of enticing Web surfers to visit AOL more frequently, the company announced Thursday that it would make 5 gigabytes of storage available free to all users, starting in early September. That’s the equivalent of 2,000 photos or 1,250 songs. AOL used to charge $10 a month for that service.
The storage service enables users to back up important documents or other data and to share music or photos with others via the Internet.
