AOL Summons The Turk
By: David Utter
Yesteryear's online service provider has decided to take the chance its future profitability can be found with online ad revenue and thousands of job cuts.
In football training camps, there is one guy they know as "The Turk." He delivers the news to players that they have been cut, and it's time to hand in their playbooks and get out.
AOL (TWX) CEO Jonathan Miller played the role of The Turk yesterday. 5,000 employees, about 26 percent of its global workforce, will be let go over the next six months. A Bloomberg report citing the cuts also noted AOL will sell its Internet access units in France, Germany, and the UK.
As for the playbooks, those are already online, courtesy of an anonymous source who sent a Member Retention manual to the Consumerist website in July.
Between the job cuts and the ongoing move of AOL's services to free availability online, AOL has made an enormous leap of faith into the power of online advertising. It has a potent partner in this endeavor; Google (GOOG) agreed in December 2005 to a $1 billion agreement with AOL that kept Google on as its search and advertising provider (AOL has other ad providers as well.)
It's a matter of bringing people to AOL now, as the company revealed a flurry of service announcements over the course of the week. They announced a revamped video portal, confirmed a report that they would make AOL email freely available to broadband users, and disclosed its Xdrive online storage would be a free service with a premium upgrade option starting in September.
The company has been building to this point for over a year. July 2005 marked the start of AOL's transition to an audience-supported model instead of a subscriber-based one. Customers had been leaving and continue to leave the company's dialup business behind for broadband connections and online services provided by the likes of Yahoo and Google.
AOL has shown it can pull off the big online event with its coverage of the Live 8 concerts last July. It's the little things that keep people coming back, and free AOL email (now with embedded ads) will be in that group. The company may have to make up as much as $2 billion with its transition; half of that may be covered already with the job cuts and European business sales.
The other half, well, that will come bit by bit, one ad click at a time.
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