December 22, 2003 4:00 AM PST
AOL takes passage to India
America Online is quietly laying the groundwork to hire software engineers in Bangalore, India--a decision that's sparking some pointed criticism but also is becoming de rigueur among technology companies.
AOL already has a presence in Bangalore, but this would be the first time it has turned to India to help build its flagship Internet software. The company's plans are in line with those of fellow Net biggies Yahoo and Google, adding to fear among U.S. technology workers that their jobs will be shipped abroad.
"It's America Online with code built where?" said one former Netscape manager. "There's an image issue that they should address, especially with all the people they just chucked."
Besides raising concerns about exporting high-paying, high-skilled jobs abroad, many of these workers have long griped that higher-ups at AOL allowed Netscape to falter.
AOL said the job posting and the layoffs are unrelated.
"We are considering opening a small (engineering) office in Bangalore," spokesman Andrew Weinstein said. "That action is completely unrelated to the Netscape job actions that were taken."
Like Ireland and other foreign countries, India isn't a new frontier for AOL. The company already operates a call center in Bangalore and has relied on software engineers in India previously through an alliance with Sun Microsystems. Still, this would mark the first time AOL turned to India to help build its flagship Internet software.
One out of every 10 jobs
AOL's Bangalore explorations come as U.S.-based businesses are increasingly tapping cheaper labor abroad, typically to handle low-level jobs such as customer service. In a newer wrinkle, some software companies are experimenting with hiring skilled programmers to assist on higher profile projects, including product development.
In July, AOL rival Yahoo outlined plans to hire programmers in Bangalore to help build its Web products. Google also is planning to open a Bangalore office and expects to hire 100 software engineers by year-end 2004.
These actions have heightened fears among U.S. technology workers that their jobs will be shipped abroad.
More than eight in 10 software companies are exporting their work offshore this year or next, according to a July study by research firm Sand Hill Group.
Cost cutting is the most commonly cited reason for this practice. Hewlett-Packard has pegged the cost of a talented programmer in India at about $20,000 a year, well below the cost of a top U.S. tech worker. Companies also face facilities costs and the expense of managing offshore work, offsetting the impact on the bottom line. The total savings from hiring an IT service provider to perform foreign work may be as high as 40 percent to 50 percent, IDC analyst Ned May said.
AOL appears poised to jump on the bandwagon at a time when it is paring back software engineering in Silicon Valley. It laid off 450 employees in its California offices earlier this month. Many of the employees who were laid off were software engineers at Netscape. AOL has offered to relocate 100 of the workers to its Dulles, Va., headquarters or its office in Columbus, Ohio.
Weinstein said the bulk of AOL's coding efforts will now be centered on the East Coast. AOL will also continue hiring software engineers and programmers in Dulles and Columbus.
One former AOL executive doesn't expect the company to outsource key programming projects any time soon, suggesting an India software engineering office probably would handle lower-profile tasks such as quality assurance, at least to begin with.
"There has not been much software-product off-shoring so far," this person said. "It can only be more difficult managing the process from afar."
Sources said AOL's recent Silicon Valley layoffs reflect a new focus on cost cutting, as well as simmering tensions between AOL headquarters and Netscape--a company AOL acquired in 1999 for nearly $9 billion only to end its signature engineering efforts such as its pioneering Web browser.
"The AOL guys always thought the Netscape guys were overpaid, they didn't ever integrate the Netscape stuff into their culture," said the former Netscape project manager. "The West Coast (engineering) groups make less sense for them."
Four stages of going offshore
The move offshore is not a simple
six-month project that businesses
can dial up instantly.
One engineering group that was largely spared was Nullsoft, the developers of the popular online music player Winamp. Despite the loss of two prominent members, Nullsoft's founder, Justin Frankel, and most of his team remain at the company. Days after the layoffs were announced, Nullsoft released its long-anticipated Winamp 5.0 media player, a new version of the software that the team hopes will revive interest after a couple years of missteps.
"AOL is in Silicon Valley because it offers unique value, not because of cost advantages," said David Weiden, vice president of marketing at TellMe and a former Netscape executive.
CNET News.com's Paul Festa, Alorie Gilbert and Ed Frauenheim contributed to this report.
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