AOL to Lay off 700

Job Cuts to Come Over Next Two Quarters

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NEW YORK ( -- AOL is laying off 700 people, or 10% of its work force, and freezing merit-based pay increases, CEO Randy Falco announced in a staff memo today.

Randy Falco
Randy Falco
The move underscores that online advertising is hardly immune to the recession's challenges, although AOL appears to be hit harder than some of its cohorts.

"The deepening economic recession has affected every corner of the economy, including our own," CEO Randy Falco wrote in the memo. "Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars."

AOL's corporate parent, Time Warner, reports fourth-quarter earnings next week, and AOL's results are not expected to be pretty. It could end up looking much worse than Yahoo's earnings. Yahoo yesterday reported profit swung to a loss, but its advertising business experienced growth, thanks to strength in the search market. AOL, however, largely runs non-search display ads.

The layoffs will be made over the next couple quarters, although AOL will try to make decisions on all the domestic cuts by the end of March, Mr. Falco noted. In addition to the layoffs and the salary freezes, AOL will consolidate offices in Mountain View, Calif., and Los Angeles. Mr. Falco also said AOL would review its international operations for cost reductions, although he didn't say whether AOL would shed any international operations. He said AOL's focus remains on creating "mutually dependent publishing, advertising and social media businesses."

It's not just in headcount that AOL is shrinking; last week in Google's earnings call the company reported it had written down $726 million of its $1 billion investment in AOL, which Silicon Alley Insider did the math and figured Google now values AOL at $5.48 billion, down from an implied value of $20 billion at the time of Google's 2005 investment.

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