Time Warner (TWX) AOL: Note From Germany

We received the following note from an ex-employee of AOL Germany (lightly edited).  A response from AOL and our own assessment follows:

I worked since 1995 for AOL Germany, and I can tell you it is really sad to see how the company simply evaporates. Today in the German press you read that AOL Germany’s forecast was to break-even next year and do a 15% profit margin in 2009. The new targets that were then set by US are 10% in 2008 and 30% in 2009. 

From my point of view, this is not the only reason for the layoffs. AOL will close the European offices in the end. They do it in waves, because tasks have to be transitioned back to the US or India, but in the end, they will close them. Last layoffs in Germany at AOL were just 6 months ago, when they went from 250 to 170…

The traffic on the German AOL portal is eroding at a speed that nobody at AOL has expected.  At least from the German perspective the experience is: When people stop using the AOL Client, which directs them automatically to the Welcome Screen / Portal, they   stop showing up at the portal at all. At least in Germany the experience is that they neither can get the current members to come back to this page when they are not forced to, nor can they draw new audiences to that page.  Meaning that in Germany at least, the portal is worthless, when you take away the access business.

So the idea is/was to build out an Ad-network, selling third-party ad-space, while AOL is still some brand here and has at least SOME traffic, so that at some point in future, you are not relying on the AOL portal anymore. At the same time, reduce costs for the AOL Portal by letting all “channels” be programmed by third party companies, who are already special interest sites for that specific topic.

AOL executive Tricia Primrose responds:

I can’t get into commenting on the specific numbers/issued raised by this former employee. That said, let me give you a little context on Germany. As you know, we sold our access business in Germany last year to Hansenet. We are clearly transitioning the business in Europe away from access to an advertising supported model. We are going to aggressively expand our footprint globally by over the next 18 months –just this year in Europe we’ve launched in Austria, The Netherlands, Italy and Spain. The recent agreement we signed with HP will put us in two dozen countries around the world over the next couple of years. In addition to AOL, we have Ad.com operations in Germany and Ad Tech, a leading ad serving platform we acquired in May, is based in there as well. Germany has and will continue to be a very important market for AOL.

Our assessment:

Online-service users abandoning AOL’s web properties once they cancel their paid subscriptions is a problem the company faces here as well (one that the company appears to be getting under control). AOL’s European properties may be able to retain some of these users, but it’s probably best to regard the new international portal strategy as an almost complete restart.

In launching the portal strategy in new countries now, AOL faces serious challenges, including entrenched local and international competitors and commodity service offerings.  The company’s AIM and ICQ properties could help–if AOL deliberately leverages them.  For more on AOL’s international portal strategy, see here.