Why for AOL, the Future Is Content

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 (s TWX) 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.