December 3, 2004 1:40 PM PST
AOL slims to grow
Early next week, AOL is expected to undergo another painful round of layoffs, ranging north of 700 workers, according to sources familiar with the plans. Most of these layoffs will hit AOL's 5,000-employee Dulles, Va., headquarters, with operations such as broadband, technology development and marketing hit particularly hard, other sources close to the company said.
Analysts said the tough medicine will further boost AOL's operating income, which has soared even as millions of subscribers turn their backs on the company's dial-up service in favor of faster broadband connections. Customers are taking their money to cable and DSL providers at the expense of the dial-up giant. AOL executives have been looking at ways to deal with a shift that shows no sign of stopping.
AOL has "been good at cutting back both in network costs and other costs which include personnel," said Rob Sanderson, an equity analyst at American Technology Research. "But I think this business model does not afford revenue growth anytime soon."
AOL is laying off more than 700 workers next week in an effort to maintain profits as it loses dial-up customers to its broadband rivals.
A tighter belt and a push to become a major ad-driven Internet portal might be AOL's only hope as its dial-up business dies a slow death.
Next week's layoffs highlight another crossroads for AOL since its business began crumbling two years ago. The Time Warner division is diverting more resources toward building out its long-underserved AOL.com home page to compete with Yahoo, Google and Microsoft's MSN for a greater share of online advertising dollars. While AOL will continue selling subscriptions to its online service, its fabled walled garden will become more porous as previously exclusive programming finds its way onto the Web for people who don?t pay for an AOL subscription.
AOL recently created a new business unit called "audience," headed by Ted Leonsis, the former president of AOL who, sidelined during the boom years, has resurfaced as a leader in its turnaround. Leonsis' unit will try to draw more visitors to its AOL.com home page by offering more free content and services. It also hopes to drive larger audiences to its other properties such as Mapquest, AOL Instant Messenger and a newly released upgrade of its long-suffering Netscape browser.
AOL has taken numerous stabs at the free Web portal business in the past, primarily using Netscape.com as its guinea pig. But these efforts went nowhere, despite attempts to use Netscape as a distribution site for Time Warner content and to gear the site toward small-business owners.
"Back then, they were probably half-baked Web initiatives, but now there's a sense of urgency and realization that they can't stake their future on dial-up," said Mark May, an analyst at Kaufman Bros. "I'm not sure that mindset was there."
Keeping expenses in line
Tough medicine and the rebounding online advertising market have fueled profit growth at AOL, giving much-needed breathing room for the company as it looks for a way out of its dead-end dial-up business. Revenue has remained flat at about $8 billion a year since 2002, but
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