At $315 million, the Huffington Post was an expensive acquisition for AOL, particularly as it took 40 percent of the company's cash on hand. What do you do when you drop a bundle like that? Why, cut staff to drop your operational expenses. In other words, make up for the financial outlay with layoffs -- 900 of them.
According to CEO Tim Armstrong, 200 of the layoffs were in the U.S. editorial offices The others were all in India, as AOL outsources its technical needs. That's about 18 percent of its work force. And none of that would count freelance writers slated to go, so the effective total may be much larger.
Armstrong's tap dance in the above good Bloomberg interview by Betty Liu was interesting. When she asked if there would be other rounds of layoffs in the future, he deflected by mentioning a larger layoff last year and then said that this was about growth. Yup, you always lay off 18 percent (or more) of your employees when you want to grow.
Pressed on how AOL was going to make money on content, which many have found challenging, he reiterated what the company has said before: combine local, national, and global content; focus on brand advertising; and providing "high quality content."
Let's take that apart. High quality content is expensive and takes bodies. AOL has cut people. Brand advertising needs some kind of display advertising, but there is nothing new in that concept. Armstrong says that "in our properties, we've seen a double digit increase in [ad] pricing this year." Hope he literally means 2011, because in its last reported quarter, AOL ad revenues were down, which, at increased ad prices, would suggest that advertisers are running away in droves.
Separate from economic issues is the real hash that AOL made of handling the layoffs. According to the memo that circulated to employees this morning, they would be notified by 3 pm if they had lost their jobs. Nice, have everyone way around most of the day to see who was sent packing.
This is a classically bad, unfeeling approach and causes more traumas both among the axed employees and those staying than doing the layoffs quickly. According to some inside sources, groups were brought together in conference rooms and told. Freelancers heard one by one throughout the day.
Maybe Arianna Huffington will turn out to be Armstrong's white knight, but given how quickly things have to pick up to keep the company going, it doesn't seem like a good bet.
- AOL Closes on HuffPo. Will Acquisitions Become a Death Spiral?
- AOL Buys Huffington Post: 3 Reasons It's a Big Mistake
- Why Did Arianna Huffington Sell HuffPo? Payoff and Paywalls, Baby!
- HuffPo or No, AOL Needs to Reinvent Itself By Committing Brand Suicide