AOL voluntary layoff program falls short

AOL will have layoffs this year after not enough employees resigned as part of a “voluntary” staff-reduction program the company organized in December.

Through the program, AOL sought 2,500 employees willing to give up their jobs, more than a third of its global staff at the time of 6,900.

“We did not reach our target of 2,500, so as we said back in November, we will need to do an involuntary layoff to reach that 1/3 reduction in the overall employee population. That involuntary piece has not happened yet,” AOL spokeswoman Tricia Primrose said via e-mail.

She didn't immediately respond to a request for more details about the program, such as how many employees resigned and when the “involuntary” round of layoffs will occur.

Clearly, the program's goal was to achieve the staff-reduction goal without putting employees through the unpleasant and traumatic process of a wave of layoffs during 2010, a make-or-break year for the company.

Industry experts have expressed concern about AOL employee morale after the company's years-long struggle to transform itself into an ad-supported business. AOL historically relied on dial-up Internet access subscriptions for revenue.

In Time Warner's third quarter, ended Sept. 30, 2009, AOL's revenue dropped 23% year-on-year to $777 million, while the advertising portion dropped 18%, much more than the global online ad industry, which, according to IDC, had a 1% revenue drop.

Since the beginning of 2005, AOL's online ad market share in the U.S. has fallen from 8.2% to 4.4% in this year's third quarter, according to IDC.

AOL became an independent, publicly traded company in December, when its former parent company Time Warner spun it off via an initial public offering.

While the break from Time Warner is widely viewed as a positive for AOL, it is also clear that AOL must have precise and effective execution this year in order to bounce back.

Its CEO, former Google star Tim Armstrong, came on board in March and has sketched out a strategy focused on significantly increasing the production of original content, overhauling online advertising programs and systems and sharpening Internet communication services.

How the upcoming layoffs will affect the newly independent company in this very critical time remains to be seen.