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AOL to Cut 5,000 Jobs in Web Access Business
AOL will eliminate at least 5,000 jobs over the next six months — more than one-quarter of its work force — as part of its plan to scale back its Internet access business, the company said yesterday.
Jonathan F. Miller, AOL’s chief executive, met yesterday with employees at the company’s headquarters in Dulles, Va., to outline the cutbacks.
AOL, a unit of Time Warner, said Wednesday that it planned to reduce annual expenses by at least $1 billion — largely by eliminating jobs — to compensate for the loss of revenue cased by the decline in its base of paying subscribers. The company is trying to compete with Yahoo and Google by offering free, advertising-supported services.
Some 3,000 of the affected jobs are part of AOL’s European Internet access business, which it is trying to sell. The company said the eventual buyers might choose to retain a substantial number of those employees.
Another 2,000 jobs, largely those of customer service workers in the United States, will also be eliminated, the company said. The jobs also include a variety of other professional and administrative roles related to marketing and operating AOL’s dial-up Internet access service.
For example, the company has 50 people who look after the creation and distribution of the software CD’s that it mails to prospects and displays in public locations like post offices. When it became clear that the company would no longer be trying to attract new subscribers, most of those employees were put on paid leave pending the formal layoff program announced yesterday. (That decision left several hundred thousand disks stranded in China where they had been manufactured and were awaiting shipment to the United States.)
AOL said it would take charges of $250 million to $350 million this year and next for severance pay, facilities reductions and other costs of its cutbacks.
Layoffs have become a way of life for AOL in recent years. Since 2000, it has announced five waves of job cuts that eliminated a total of 4,700 positions. In that time, however, its total employment base has remained roughly constant at about 19,000. As customer service jobs were eliminated in the United States, others were created in India, and many engineering jobs were transferred to Ireland.
The jobs eliminated by the current cutbacks will largely not be replaced. An AOL spokesman said that the company had not ruled out further layoffs but that none were in current plans. AOL has said it expects to lose at least six million of its 17.7 million subscribers in the next year and more than nine million in total over three years.
In Europe, AOL is trying to find buyers for its Internet access businesses in Britain, France and Germany that will agree to continue to display AOL’s Web page as their home page. The company said it was negotiating with Neuf Cegetel to buy its French operations and hoped to have buyers in Germany and Britain within six months.
AOL is also preparing to reorganize its internal structure and top management to accommodate its scaled-down ambitions. Yesterday, John McKinley, president of AOL’s digital services division, which sells products like voice mail, said he would resign. He will form a company to sell educational services, one of the areas that he had developed at AOL.
AOL will continue to offer some premium services. But many more will be offered free with advertising. And some will be used to enhance AOL’s $25.90-a-month service.
For example, AOL said yesterday that it would offer five gigabytes of online space to any user to store photographs, music and other files. Its paying customers will get 50 gigabytes of storage, more than many low-end computers. Google, Yahoo and others have increased the storage they offer in their e-mail and photo services, but they do not yet offer such large general-purpose file storage.
Meanwhile, competitors in the online access business were gleeful at the news that AOL, the nation’s largest Internet service provider, would stop marketing and would allow customers to keep their AOL.com e-mail addresses even if they moved to another provider.
Mark R. Goldston, the chief executive of United Online, which sells dial-up Internet access under the NetZero and Juno brands, said the biggest obstacle to luring customers from AOL was that they did not want to change e-mail addresses.
He said United was preparing a new marketing campaign to lure AOL customers.
“If I wake up and find that the big dog is not going to spend $1 billion that he was going to spend and will let people take their e-mail addresses with them, I am going to have a good day,” Mr. Goldston said.
“Whatever the dial-up market was going to be, I’m going to get more of it today than I was before.”
