AOL Spinoff May Send Third of Workforce Reeling

From high-flying Internet pioneer to movie punchline: AOL’s nadir may have come when Nicole Kidman’s character in the 2004 remake of “The Stepford Wives” asks a group of husbands of robotic spouses where they work.

“AOL,” answers one man.

“Is that why the women are so slow?” Kidman responds.

The joke offers cold comfort to the AOL employees who found out Thursday that one-third of the workforce — some 2,500 positions — may be let go as the company gets ready to shed itself from parent Time Warner on Dec. 9. That spinoff date was announced earlier this week.

In an SEC filing, AOL said the job cuts will save some US$300 million. The company will ask employees to step up for voluntary buyouts first before beginning any layoffs.

As analysts and technology watchers begin to ponder which of AOL’s assets are likely to be spun off to continue the cost cutting — messenger service ICQ and MapQuest are getting some blog attention — others are wondering how the company that was one of the first successful ISPs and Web portals of the mid-’90s can write the next chapter of its story as it tries to stay alive in a much more competitive Web environment.

Execute, Execute, Execute

“They’re quite similar to Yahoo in a lot of respects,” Greg Sterling, editor at Search Engine Land, told the E-Commerce Times. “What really lies ahead for them is a lot of better execution. Under Time Warner, they neglected certain things and didn’t think through entirely some others.” Bebo, the social networking site popular in the UK, is one example: AOL bought the company for $350 million in March 2008 but has stood by as Facebook and Twitter have monopolized media attention.

There are other internal properties — ICQ, MapQuest, the Weblogs familiy of blogs, including Engadget — that Sterling says may have seen their own brands suppressed because of their relationship to AOL.

“They need to be a lot better about pursuing their opportunities and doing a good job delivering,” Sterling said. “They are a big online publisher, and that will be one area they emphasize. They still get a lot of page views and have a big ad network. They have a lot of ad inventory, and they will be a big player in the display space.” AOL, he added, could also find itself at the center of a bidding war for its search assets between Microsoft and Google — antitrust issues aside.

However, AOL must figure out its brand for the next decade of the 21st century, Sterling emphasized. “They’ve become known as the Internet with training wheels, or the Internet for newbies, those who aren’t sophisticated. They clearly have individual properties with strong branding, but they need to figure out what their strategy is. Are they going to be Proctor & Gamble, with subsidiary independent brands? That’s the big challenge they face.”

Dial Up the Right Leadership

Another tech company that was facing a similar large challenge about 10 years ago managed to right its ship and reinvent its brand, said Rob Enderle, principal analyst of the Enderle Group. “In many ways AOL mirrors Apple of the 1990s. I think they need a Steve Jobs-style turnaround. They need someone who has read Jobs’ book to do for them what Jobs did for Apple.”

AOL remains a potent brand, retains a lot of email and IM clients and actually has a decent portal, Enderle told the E-Commerce Times. Its mission: “Sell off or cut back to whatever they feel their most successful offering is, become profitable on that, and then build out. Right now they are still too complex for their size and the massive layoffs have probably left them unviable as a company. They have to bring their scope within their reach and form a foundation they can build from.”

Content and publishing may indeed form that foundation. AOL has received some recent positive publicity for its political news portal, hiring writers and editors recently let go from traditional media outlets. Its mobile, shopping and local content services are underutilized, Sterling contended.

“They have a deal with Citysearch, they have MapQuest and Yellow Pages. It will be interesting to see if they can knit that all together into something coherent [for local services]. They don’t really gel into anything right now,” Sterling said.

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