Bleeding subscribers and anxious to boost ad revenue, the portal plans to cut a quarter of its work force.
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August 3, 2006
Poor AOL. The company that led the Internet revolution a decade ago on Thursday announced plans to cut 5,000 jobs in an effort to save more than $1 billion.
The company has lost more than 12 million access subscribers since 2001, and is now trying to stake its future on online advertising, going head-to-head with Google and Yahoo.
It’s a scary proposition to ramp up advertising efforts and try to beat the dominant players at their own game, but AOL doesn’t have much choice now. Advertising has become the biggest driver in the Internet sector, with ad revenues expected to grow more than 30 percent to at least $16 billion this year, according to researcher eMarketer.
To accomplish its shift to an advertising business model, AOL, in a much-anticipated announcement on Wednesday, said it would stop marketing its dial-up Internet service and start providing email, software, and other services free of charge to its broadband customers. AOL said the move would cause it to lose more than half its 17.7 million subscribers over the next three years.
To offset losses from its bread-and-butter Internet service, AOL on Thursday said it will eliminate a quarter of its work force over the next six months.
According to eMarketer, 75 to 80 percent of AOL’s $8.2 billion in revenues last year came from Internet access subscriptions, while advertising accounted for $392 million of total revenues. That’s a 26 percent increase from the previous year, eMarketer estimates, but still a fraction of AOL’s total revenues.
It’s a sad and uncertain time for AOL, one of the first and biggest Internet access providers. Industry watchers trace the Arlington, Virginia, company’s decline to its merger with Time Warner in 2001. The marriage of new and old media never produced the multimedia empire the companies had envisioned.
Instead, old guard Time Warner has been accused of stifling innovation at AOL. Meanwhile, Google, Yahoo, and Microsoft have been constantly trying to top one another, producing ever more new services and features.
Earlier this week, for instance, Microsoft rolled out Windows Live Spaces, the next generation of the company’s widely used blogging service, MSN Spaces. The new service includes social networking features designed to help users connect with friends and allows customers to personalize their Windows Live Spaces.
On Wednesday, Google became the search toolbar for RealNetworks, a maker of software that play music and video online. Customers who download RealNetwork’s software will have the option to install Google’s toolbar for searches. Google also signed a deal with XM Satellite, the nation’s largest pay-radio service, that allows Google’s advertisers to place commercials on XM channels beginning later this year.
Also this week, Yahoo upgraded its digital music service, Yahoo Music, and renamed it Yahoo Music Jukebox. The upgrades include a new equalizer that allows user to adjust sound better, and automatic access to playlists from any PC.
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