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Summary:

AOL over the past few days has been making the wrong sort of news. Today, Kara Swisher reported that the company is going to slash 700 jobs (10 percent of the total employee base), pare down its operations and essentially shrink itself into a much smaller […]

aol-logoAOL over the past few days has been making the wrong sort of news. Today, Kara Swisher reported that the company is going to slash 700 jobs (10 percent of the total employee base), pare down its operations and essentially shrink itself into a much smaller entity. Kara also obtained the layoff memo sent out by AOL CEO Randy Falco, which details the three major areas of focus AOL will be left with:

  • Content, as defined by the recently formed MediaGlow group, which includes properties such as Engadget.
  • Platform-A, the advertising group that’s been formed by spending billions on buying startups.
  • And lastly, the People Networks group, which includes Bebo, ICQ, AIM and other social media properties.

Of those three groups, two of them appear be have been built on a foundation of wet clay. For example, the advertising downturn is already taking its toll on the Platform-A operation, with AOL suffering an 18 percent decline in revenues in 2008.

Earlier this week, rumors surfaced that AOL might sell Bebo, the social network AOL acquired about a year ago for a stunning $850 million. Whether true or not, one has to wonder if AOL is having buyer’s remorse when it comes to Bebo, especially in light of the sharp decline in ad dollars flowing into social networks.

That leaves Content, which seems to be in the driver seat. Check out the effusive (and specific) words used by AOL’s Falco to describe MediaGlow, its niche content business.

We grew our MediaGlow audience via an efficient content development model that in 2008 enabled us to launch more than 20 new sites that are generating significant page view (up 64% year over year in December), engagement (up 39% year over year) and unduplicated user (70+ million) numbers. This momentum will continue in 2009 with our goal of creating an additional 30+ editorially curated sites focused on consumer passion points.

Those words hint that AOL’s corporate parent Time Warner might be happier getting rid of everything except the content properties of AOL, which it could turn into the cornerstone of Time Warner’s digital strategy. After all, if they do indeed get rid of Time Inc. and AOL, Time Warner would be nothing more than a Hollywood studio, with little to show in the way of digital assets. (Remember, they are spinning off Time Warner Cable.)

What Time Warner needs to do is combine MediaGlow, AOL Music, AOL Video, TMZ and AOL Entertainment. A smaller, more focused combined entity would play to Time Warner’s core strength: content.

And by hiving off everything else, the company would also get some much-needed cash. As an amusing aside, I would like to point out that Time Warner had absorbed AOL’s access business into its financials — a smart move. I think it’s a business that despite declining throws off cash like crazy, most recently to the tune of over $700 million. And in these fiscally challenged times, as we have learned, cash is king.

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  1. Wow, how long has it taken Time Warner to start using AOL as a delivery stream to monetize one of the greatest content libraries in the world. Forget TMZ and Engadget, what about CNN, Sports Illustrated, Warner Brothers music and movies, the million TV shows that they own.
    Let’s do the math: Millions of eyeballs a day go to AOL each day. They make money through ads. Pour the premium old media content through the AOL portal and strap those ads onto it. That sounds like a pretty simple formula for a monopoly: Content, Delivery Pipeline, Ads.
    Idiots can’t figure out how to get out of their own way!

  2. Ben Barren – Confessions of a Mad Man » content is king, 2 AOL anyway, maybe. Thursday, January 29, 2009

    [...] area 2spend yer time, in the way u can combine/divest/buy/sell/re-focus assets. I like the GigaOm content is king summary (in the same week AOL are shutting down WeblogsInc blogs that they wont sell back to Calacanis, who [...]

  3. This is a really great article that exposes how AOL seems to have its eggs in the wrong basket at the moment. It is always interesting to see how business plans change in these times.

  4. Glam Media acquires AdaptiveAds | socialmediainfluence.com Thursday, January 29, 2009

    [...] Om Malik muses as to the future of AOL, saying signs suggest its corporate parent Time Warner might be happier getting rid of everything except the content properties of AOL. [...]

  5. Nice perspective.

    It will be interesting to see if the corporations have the balls to follow through with their digital strategies that they’ve spent billions on the last few years by buying start-ups. If they don’t follow through, their investments have been worthless, and in the end this will knock down their stock prices and hit the stockholders.

    Wow this is an interesting period :-)

  6. @vitamincm…. you nailed it, these guys can’t get out of their own way and try and be something they are not.

  7. I wonder which business consulting firm is going to make a small fortune working with AOL to implement some of the ideas you described here. BCG? Accenture?

    Thank you for the thorough analysis, Om.

  8. With New CEO Spin Out Ahead For AOL Thursday, March 12, 2009

    [...] People Networks (Bebo, AIM, ICQ) and advertising (Platform A). As I pointed out earlier, only the content seems to be thriving for the company. It is also aligned with Time Warner’s core competency. Platform A is being hurt by the [...]

  9. transformers movie Monday, May 25, 2009

    Wow, how long has it taken Time Warner to start using AOL as a delivery stream to monetize one of the greatest content libraries in the world. Forget TMZ and Engadget, what about CNN, Sports Illustrated, Warner Brothers music and movies, the million TV shows that they own.

  10. Time Warner Gives Up on AOL Thursday, May 28, 2009

    [...] which said earlier this year that it would focus on three primary lines of business: advertising, content and social networking, has seen its revenue drop 23 percent year-over-year in [...]

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