AOL is scrapping some online destinations but will push others harder in an attempt to improve its finances, according to internal memos.
Among those products to be shuttered are Bluestring, a site to share videos, music, and photos; Xdrive, a general-purpose online storage service; and AOL Pictures, where people could store and share photos, according to a July 14 memo from Kevin Conroy, AOL's executive vice president of products and marketing. The memo was published Thursday by TechCrunch.
Kevin Conroy
(Credit: AOL)"These consumer storage products haven't gained sufficient traction in the marketplace or the monetization levels necessary to offset the high cost of their operation," Conroy said in the memo. Also to be closed is MyMobile which repackages various AOL services for use on mobile devices.
AOL is likewise paring back some of the blogs it hosts, according to a different memo obtained by PaidContent.org. The DIYLife blog is being shut down, according to that report, and bloggers there and at the Unofficial Apple Weblog and DownloadSquad, who are paid by the post, have been told to stop posting until July 31 to cut costs.
It's not unusual for companies to cut products to improve finances, but AOL has a particular incentive: corporate owner Time Warner is trying to prepare the once-powerful subsidiary for sale or other strategic alternatives.
AOL will push several other products harder in an attempt to boost revenue. Those products include AOL's browser toolbar, its desktop software, its e-mail service, and its Truveo video search site, according to the July 14 memo.
Update 8:41 a.m. PDT: A source within AOL has confirmed the authenticity of the memos and a plan Conroy mentioned to sell the Xdrive division.
The source characterized the cuts as part of AOL's standard procedures to maintain profitability. Last year, the company cut 50 online properties, including its video download service. As with that change, AOL will provide users options such as partnerships with competitors or archival CDs and DVDs to preserve their data, the source said.
Packaging for sale
Time Warner is separating AOL's two components, audience and access, the former being its online properties and the latter its dial-up Internet access business. The company is doing so "to increase the accountability and operational focus of each of those businesses, and...to enhance our strategic flexibility," said Time Warner Chief Executive Jeff Bewkes earlier this year.
Splitting off the dial-up business is important. With broadband increasingly ordinary, dial-up is going nowhere but down, and selling access to the Internet is an operation most content and advertising companies would be loath to absorb.
Some of the cuts at AOL are of divisions that are aligned with the old dial-up business. For example, Xdrive is offered as one of the perks of premium subscription plans. And AOL Pictures was an early online photo option for subscribers.
So AOL is trying to transform itself into a modern Internet company, with high-traffic properties and online advertising. The question is who might be up for a deal with AOL?
There are two obvious candidates: Yahoo and Microsoft. Both have significant cash, significant online operations, and significant troubles keeping up with Google's rise to prominence. They would love the extra Web site traffic: each page viewed is an opportunity to sell advertisements, and adding all that extra ad inventory expands the clout of the companies' ad networks during a time of consolidation.
It should be noted that AOL's ad network, Platform-A, delivers advertisements to a larger fraction of U.S. Internet users than any of its competitors, according to ComScore's latest statistics. Its reach of 90 percent is ahead of Yahoo, at 83 percent, and Google, at 81 percent.
Online ad growth
Here's why, even with the current economic troubles, AOL is potentially desirable, despite its troubles: U.S. spending on online ads will increase from $25.9 billion this year to $41 billion in 2011, analysis firm eMarketer projects.
But AOL specializes in display ads, the graphical variety that cost advertisers when they're put on Web pages. Google minted its billions of dollars in revenue chiefly on textual search ads, which are paid only when users click on them, a structure that makes it easier for advertisers to measure performance and justify the expense of ad campaigns.
With the economy gone sour, it's these display ads that are under more pressure.
Cowen analysts Jim Friedland and Kevin Kopelman on Friday lowered their forecast for display ad spending in the United States, saying that search ad spending is stronger. "We believe paid search spending is much less exposed to ad budget cuts than other media, based on our previously published analysis of the historical spending patterns on direct mail during recessions," the analysts said.
And display is a smaller part of online ad spending: eMarketer projects that U.S. display ad revenue will increase from $5.5 billion in 2008 to $7.9 billion in 2011, while search ads will increase from $10.4 billion to $16 billion.
For search ads, AOL relies on Google's technology and shares the resulting revenue. Yahoo and Microsoft, though, could swap out the Google ads with their own, adding significant heft to their search ad operations.
Other buyers?
Who else might be interested? Google is showing more signs of interest in diversifying to traditional Internet portal activities such as e-mail, news, finance, and shopping, but it also appears to have the patience to build its own properties using its staggering cash flow. It's got its troubles, but it completely lacks the odor of urgency that emanates from Yahoo and Microsoft.
Another possibility is IAC/InterActiveCorp, a conglomerate of many online properties. However, while IAC wants to expand its advertising network, it also looks not to be in the mood for consolidation. It's seeking to spin off operations such as LendingTree, Ticketmaster, and HSN.
Probably more likely would be a more traditional media company such as or , both of which have shown interest in hitching their carts to the online bandwagon.
The New York Times' advertising revenue decreased 17.8 percent in its most recent quarter, the company said Wednesday, "because of weakness in print advertising," so online advertising could help even if it's not a miracle cure. The Times also announced a partnership with online contacts management site LinkedIn and runs the About.com site.
News Corp., meanwhile, operates MySpace and has an investment in online video site Hulu and has a strong interest in online advertising.
Makhijani will be president and chief executive of Yandex Labs, the company said Friday.
"Vish and his group at Yandex Labs will help to develop and improve Yandex's core technology capabilities including the quality of algorithmic search for the Russian audience," said Arkady Volozh, CEO of parent company Yandex. "We did not hesitate to go the extra mile to find this rare talent." (Though with Yahoo's recent management turmoil, the distance looks to have been shortened considerably.)
Now might be a good time to join Yandex, which maintains an edge over Google in Russia if not the globe. Yandex appears bound for an initial public offering soon on Nasdaq, hoping to raise $1.5 billion to $2 billion, according to a recent Reuters report.
Voluntarily or not, it looks like Yahoo will be getting a lot less top-heavy.
The pioneering but troubled Internet company is headed for a reorganization that, combined with an exodus of top Yahoo executives, will in all likelihood put power in dramatically fewer hands.
A lean management structure can be good for building a nimble, responsive organization. The problem with that idea at Yahoo is that the company is losing many of the executives who have control over day-to-day operations.
Ash Patel
(Credit: Stephen Shankland/CNET News.com)And in some cases, the departures spread multiple steps down the hierarchy, depriving Yahoo of talent to promote and of expertise to train any new arrivals. Major turnover on this scale can turn succession planning into improv theater.
It appears the executive departures and an imminent reorganization are inextricably linked. From our discussions with Yahoo insiders and people familiar with the matter, it appears some executives want to leave, which means some reorganization is inevitable, while others aren't happy with just how that reorg appears to be shaking out.
To recap our and others' coverage, here's where Yahoo's upper echelon appears headed. First, the exodus:
Last week, two executive vice presidents--Jeff Weiner of the network group, and Usama Fayyad of research and computing infrastructure--said they'd be leaving. A third EVP, Qi Lu, in charge of search and monetization, joined the list this week. Two senior vice presidents also are departing, Brad Garlinghouse of communication and communities, and Vish Makhijani of search.
Second, what comes next? The reorg, as we reported Thursday. Some details on the possibilities have emerged. President Sue Decker is leading the revamp, according to the Wall Street Journal and others.
Patel, Schneider ascendant
Ash Patel--one of the company's earliest engineers and a man who still enjoys talking with programmers--looks to be ascendant overall by leading a new Yahoo products group. That would include areas such as search, Yahoo Messenger, Flickr, and Yahoo Mail.
Currently, Patel is EVP of platforms and infrastructure. That may sound like a behind-the-scenes infrastructure job, but a big part of the company's turnaround plan is the Yahoo Open Strategy, a plan to expose Yahoo's inner workings to outside programmers, and that's Patel's domain.
But should an engineer run all of the products group? Kara Swisher at AllThingsD believes the prospect of reporting to Patel is what was behind the Garlinghouse and Makhijani disgruntlement.
We're also hearing word of a regional organization for other areas, and Swisher reports that Hilary Schneider will oversee the U.S. operations involving advertising and media. She's currently EVP of global partner solutions, where she signs up display advertisers among other things. In the new order, she'll be Patel's peer and will report to Decker.
As for the other regions, Toby Coppel will run Europe, Rose Tsou will run Asia, and Keith Nilsson will run emerging markets, Swisher said.
CTO Ari Balogh will absorb some of Lu's engineering team, Swisher also said. One source we spoke to wasn't optimistic about that arena, believing that Yahoo needs a technology leader who's a young Turk rather than someone from the old guard--VeriSign in Balogh's case.
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Hilary Schneider
(Credit: Stephen Shankland/CNET News.com)
A fresh start?
It's apparent from assorted insiders that there's worry about Yahoo brain drain.
But would that necessarily be a bad thing?
Yahoo remains a powerful Internet property, but much of the initiative has shifted to Google when it comes to online innovation. Google found a way to make search ads immensely profitable, is expanding aggressively into many traditional portal activities such as e-mail, and is pushing cloud computing technology with Google Apps.
So, for all the current executives' accomplishments, Yahoo has yet to match Google's overall ascent. Perhaps it's a good time for fresh faces. Corporate turmoil, like war, can quickly promote a captain into a colonel.
Freshness will go only so far, though: the two at the top, CEO Jerry Yang and Decker, are committed to Yahoo "for the long haul," I hear.
I'm not convinced the pair's abilities are in a dramatically different league from most CEOs, but they are suffering under an unusually intense spotlight. Yahoo's bruising battle with Microsoft, replaced now with a bruising battle with billionaire activist investor Carl Icahn, exposed Yahoo vulnerabilities and simultaneously gave shareholders a taste of Yahoo stock above $29.
Even though Icahn was trying to push the now seemingly doomed Microsoft acquisition, he hasn't gone away. He's expected to propose an alternative board of directors soon in anticipation of the company's August 1 shareholder meeting.
CNET News.com Editor in Chief Dan Farber believes Wall Street will effectively oust Yang and that Decker is the likely successor. I'm not willing to make that pronouncement yet, but certainly one challenge at the company, putting several individually strong properties together into a coherent whole, is a task for high-level management.
Wall Street seems mildly pessimistic about the changes so far, though not as much as when the possibility of a Yahoo-Microsoft partnership fell off the table. The company's stock gradually slid over the week from about $23 to about $22. What it does after the reorg and Carl Icahn could determine Yang's fate.
Joshua Schachter, the founder of the Delicious social-bookmarking service Yahoo acquired in 2005, is joining the executive exodus from the Internet giant.
"Just time to move on, I think," Schachter said in an e-mail, but didn't share further details.
The Internet company also confirmed on Thursday evening that Schachter will leave at the end of June; TechCrunch reported it earlier.
"Joshua Schachter has contributed greatly to Delicious' success and Yahoo's success in our social search efforts...Yahoo wishes him well in his next endeavor," the company said in a statement.
Yahoo headquarters in Sunnyvale, Calif.
(Credit: Stephen Shankland/CNET News.com)He's one of an ever-longer list of recent Yahoo departures, which also includes the following just from recent days:
Jeff Weiner, executive vice president of the network division; Qi Lu, executive vice president of engineering for search and advertising technology; Usama Fayyad, chief data officer and executive vice president of research and strategic data solutions; Brad Garlinghouse, senior vice president of communications and community; Vish Makhijani, senior vice president of search; Stewart Butterfield and Caterina Fake, the husband-and-wife co-founders of Flickr; Jeremy Zawodny, an open-source developer and evangelist of what's now become the Yahoo Open Strategy; and Jason Zajac, who has been general manager of social media, head of finance for the audience division, and vice president of corporate strategy.
Yahoo believes there are plenty other folks to keep Delicious healthy: "His departure leaves behind a seasoned team that will take Delicious to the next level, as well as carry forward the mission of Delicious to continue to be the shared memory of the web and the world's largest social bookmarking site."
Delicious (aka del.icio.us) lets people save Web site bookmarks on a central server, adding tags and text to describe them. People also can subscribe to feeds showing others' bookmark activity, whence the term social bookmarking.
Schachter started the project in response to challenges he encountered sharing bookmarks at the Memepool site he helped found and run.
Yahoo released a delicious plug-in for Internet Explorer on Thursday, but it's had a Firefox plug-in for years and can be used with a more ordinary browser interface, too.
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