Saturday, October 13, 2007

AOL, Mainstream Media and "Crack Addiction"

My friend and former colleague Sam Ro shared this interesting chart showing AOL's layoffs going back to 1996. Or maybe I should call it a morbidly interesting chart. In truth, it's really disgusting and it brings back all kinds of bad feelings at a time when many people in AOL's Dulles headquarters are expecting another round of layoffs in the wake of the decision to move its headquarters to New York.

It's hard for those of us who worked at AOL in its glory days to explain how we feel seeing everything we built unravel, and all for reasons that had nothing to do with the value of the product. I could go on and on about some of the great pioneering initiatives at AOL, such as first mass-market instant messaging service, first mass-market dialup internet service (without which broadband could never have been justified), and in my humble opinion, first true mass-market community and social network -- even if it consisted mostly of pieces that could have been tied together to be what MySpace and Facebook are today, but unfortunately weren't.

Without revealing anything proprietary, I can tell you that many of the online services and features we all commonly use today were either first attempted, popularized or conceived at AOL or an AOL property like Netscape, CompuServe or ICQ. And if they didn't happen there first, they were proposed by not one but several smart people who, despite their best efforts, could not get enough organizational support to move the rock up the bureaucratic mountain.

Things changed quickly though. A little over a year ago, thanks to the more rapid than expected shift from dialup packaged service to "bring your own access" broadband, AOL was forced to reckon with the inevitable by basically giving up its dialup service and making most of its content and services available for free on to anyone with an AIM user name. The efforts of many people, including some of my own, made it possible for AOL to offer many services for free over the Web in a moment's notice (a few examples: AOL Hometown, Journals (Blogs), You've Got Pictures, E-mail and AIM). The hope was that the growth of online advertising would replace those dial-up revenues. But replacing the revenues from tens of millions of people who pay a monthly fee with advertising isn't something that can happen overnight.

So why am I even writing this, let alone on a blog that is normally about online newspapers and citizen / networked journalism? Because in that chart, I see a warning for other companies -- in particular, mainstream media companies.

Mainstream media and AOL have a lot in common because both are, to use an intentionally disturbing analogy, "hooked on the crack" of a monolithic subscription business model that can't scale for the future. And despite many noble efforts to break the addiction, it's not something that can happen in a flash.

The problem with that is that sometimes changes in consumer behavior force transitions to happen too quickly for mainstream companies to react as gradually as they're designed for. So first they panic by laying people off to trim operations, and if that doesn't work they often end up laying off even more people just to pay the bills. And sometimes they go out of business, or are sold to the highest bidder. Newspaper companies have seen examples of all of the above in the last couple years.

Of course, this is exactly counter-intuitive to what they should be doing, which is to focus even more on where they need to be so that they don't have to fire people to begin with. But tell this to countless CEOs who ultimately can't control what individuals do day to day, other than hire and fire. When pushed into a corner what are their choices?

My hope is to provide enough warning and inspiration to leaders in the media industry to start laying the framework for radical change today so that when they face the kind of "tipping point" you see now at places like AOL (ironically, a company that was once seen as the poster child for the future), they're able to gracefully switch to new models. Based on what we see in the newspaper industry, that could be 3-5 years away, and possibly even less.

I have no idea how many people will be let go from AOL in the coming weeks, but I have a sinking feeling that it will be one of the biggest cuts ever (and I hope I'm wrong).

There is another warning in that chart, and it has to do with morale. For reasons many of us never understood, AOL made regular layoffs a part of its culture, in both good times and bad. There were equally large firings in 1998 and 1999, with one of the biggest and most wrenching happening after AOL's acquisition of Netscape. Remember that the Internet "dot bomb" didn't start to happen until the middle of 2000.

I recall talking to some unnamed executives about this, and their explanation is disturbing to this day. They were happy to have regular layoffs even in good times, because they saw it as a form of social Darwinism that would weed out the weak and make room for younger, stronger, smarter employees. They liked having an excuse to get rid of troublesome people, especially what they called the "rest and vest" crowd (people who did nothing until their stock options vested).

I sort of understood this, but it never made sense to me how a company of 10,000 at the time could justify departing with 200-800 people so easily and feel like it was a good thing to be proud of. It grated on me and many others, and made us all paranoid. And just for the record, I was never laid off, and the people I most respected weren't either. We all left of our own volition, partly because the layoff culture made us stop believing in the company. The idea that someone up above could so callously part with any of us in the interests of a twisted Darwinist ideal affected our morale in a serious way.

If you work at a mainstream media company today, consider it your solemn obligation to do everything within your power to help your CEO not get pushed into that corner. And if you're a CEO, do everything you can to support the people who can move you into the future. And please, above all, don't fall into the trap of thinking you can cut your way to success. Not only does it not work (look at that chart -- it doesn't lie!), but it destroys the confidence of the people who you most need to inspire at this time.

10/15 Update ...
Latest reports call for 2,000 layoffs, with 750 of those in the Washington, D.C. area. That's 1/5 of AOL's remaining work force. So it's not the biggest ever (that would be 5,000 last December), but it is among the biggest at headquarters.


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