Just when you thought Time Warner's (NYSE:TWX) America Online division was growing briskly and attracting a sea of buyout offers, it's going on another personnel diet. Reuters is reporting that the company is trimming its online arm's payroll by 700 employees, mostly in the company's dial-up services area.
To an extent, that's understandable. Ever since the number of America Online's domestic subscribers peaked three years ago with 26.7 million users, the company has been losing about 2 million more customers than it has been signing up every year. The head count stood at just 20.8 million users over the summer.
The company has been emphasizing its AOL.com site for awhile, and this month it launched its first national campaign to promote the portal, apart from the subscription service. Pitching it as "the new AOL.com, now open to everyone" with free access to videos, MovieFone, Mapquest, and other proprietary content such as AOL CityGuides, the connectivity giant is looking to offset its subscriber churn by broadening the appeal of its stand-alone website properties.
However, this is where the pink slips could also come back to haunt Time Warner. In the second quarter, online advertising revenue soared by 45% despite a 9% dip in subscription revenue. AOL's Instant Messenger cyber-chat software may be widely popular, and a lot of folks may be attracted to AOL's Web-side content, but how popular would the AOL.com component be if there weren't a walled-in community of paying subscribers on America Online?
That's why it's odd that Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Comcast (NASDAQ:CMCSA), and Yahoo! (NASDAQ:YHOO) are all supposedly gunning for a minority stake in AOL.com instead of for AOL as a whole. Sure, those companies are trying to make sure that they acquire the right to place their contextual ads on America Online's magnetic pages, but I think it's just as important to find a way to turn the flagship access provider around, to make sure that it doesn't have to build a portal audience from scratch. Connectivity isn't dead, folks. Rivals like Earthlink (NASDAQ:ELNK) and United Online (NASDAQ:UNTD) are doing relatively well.
No, I don't think AOL.com would lose its roughly 110 million monthly page views if its online service went to Obit City, but I think that AOL would have to try a lot harder to lure visitors to its portal if the playing fields were leveled.
So good luck to Time Warner, AOL, and its suitors. Let's just hope that the person who held the key to dial-up service's salvation wasn't one of the 700 sent home with the coldest of sound files: Goodbye!
Time Warner was recommended in the August 2002 issue of Motley Fool Stock Advisor .
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Longtime Fool contributor Rick Munarriz is proud to be one of those 20.8 million AOL subscribers. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
