AOL CEO: Layoffs today, bright future ahead

Tim Armstrong promised that 2011 will be the year AOL revenue starts growing again

Despite laying off 20 per cent of the AOL workforce Thursday, AOL CEO Tim Armstrong foresees 2011 as the year that AOL will start to grow again.

The company is in the process of laying off approximately 900 workers, it announced Thursday, the same day Armstrong spoke at the Bloomberg Media Summit, being held this week in New York.

At the conference, Armstrong attributed the layoffs to the changing business model of AOL, which is moving from being an Internet service provider to an ad-driven online content company.

"Today is a very difficult day for the company because people's jobs are impacted," he said.

However, he noted, "we are in a comeback situation and my job and management's job is to stay on top of what we need to do organizationally to change the company, and we're not going to shy away from that."

Despite the fact that the company is laying off personnel, Armstrong expects to be hiring more workers, particularly those in the editorial field.

While once the dominant U.S. provider of dial-up online services and associated services, AOL has floundered badly over the past decade as users gravitated toward broadband providers. For fiscal 2010, the company posted a net loss of $US782.5 million, as well as sinking revenue, from $3.2 billion in 2009 to $2.4 billion in 2010.

The dial-up business still accounts for about 40 per cent of AOL's revenue; AOL still has about 2 million U.S. subscribers to that service. But Armstrong expects that number to decline by 25 per cent to 29 per cent a year. Armstrong sees AOL's focus as providing content and other Web services, and generating revenue by ads that will run alongside these offerings.

To this end, the company recently acquired, for $315 million, the Huffington Post, a Web news site that garners 253 million unique visitors per month.

"The Huffington Post deal for us really was about trying to transition the company to be more of a digital media company," Armstrong said. He noted that, despite its increasing focus on content, AOL still employs largely a technical workforce.

AOL is now combining The Huffington Post operations with all its own media properties, creating a new unit called the Huffington Post Media Group. Huffington Post co-founder Arianna Huffington will lead the new group as president and editor-in-chief, Armstrong said.

Prior to the acquisition, "AOL had roughly 400 content engineers and 400 full-time editorial people internally. That's not [the make-up] of an Internet company. An Internet company has a small number of engineers building something many editorial people can work on," Armstrong said.

Of those being separated from the company in this round of layoffs, about 200 will be editors working in the U.S. media operations, as a result of the Huffington Post merger.

Most of the remaining 700 employees being severed are located in India, where much of the operations will be outsourced. About 300 of these employees may end up going to the outsourcing companies AOL contracts with, where they will continue to work on AOL projects, Armstrong said.

In the months to come, Armstrong is planning to increase the percentage of editorial people on the content group from 51 per cent to 70 per cent. "I think you will see us hire more and more journalists and we will move more from a freelance model to full-time journalists over time. You will see us ramp up hiring in the content space."

Even though the most recent financial results looked dire, the company's fortunes are already on the upswing, he said. Armstrong pointed to a redesign in the AOL portal page as evidence of the change in the company. Previously, users would see around 14 small ads. Those have been replaced by a single ad as a way to entice more prestigious advertisers, he said.

"The revenue mix is much healthier now, compared to what it was a year ago," Armstrong said. "Consumers are getting a much better experience and advertisers are getting a much better experience."

As a result of these changes, he noted that "the company is much healthier now than it was a year ago. And it will be much more healthy by the end of the year."

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