All Things Digital

I’m hoping the two of them will beat each other’s brains out over search and leave the display market to us. I think it’s a mistake. But I think Napoleon said never interrupt your enemy when they’re in the middle of making a mistake.”

–AOL CEO Randy Falco, Feb. 26

Hope AOL CEO Randy Falco doesn’t think a merger of AOL and Yahoo (YHOO) is as big a mistake as a merger of Microsoft (MSFT) and Yahoo, because AOL parent Time Warner (TWX) has stepped up merger and joint-venture talks with the besieged company. Engineered to thwart Microsoft’s hostile bid for Yahoo, the deal would see Yahoo acquire Time Warner’s AOL in exchange for the media conglomerate taking a large minority stake in the resulting monstrosity. The companies believe the arrangement would create an online advertising powerhouse. And given the vast success of the AOL/Compuserve, AOL/Netscape and AOL/Time Warner mergers, how could they possibly be wrong?

News of talks follows Yahoo’s extension of the deadline for nominating directors to “10 days following the public announcement of the date for Yahoo’s 2008 annual meeting of stockholders,” a move that will postpone whatever proxy battle Microsoft may–or may not–be cooking up. “As the company has not yet announced the date of this year’s annual meeting, the amendment will give stockholders who want to nominate one or more directors, including Microsoft Corporation, more time to do so,” Yahoo said in a statement. “The amendment does not preclude any party from nominating one or more directors at any time prior to the new deadline.”

Jerry Yang is lucky AOL CEO Randy Falco isn’t a Yahoo board member, because he’s a staunch advocate of a Microsoft-Yahoo merger. Why? Because it will keep Google busy long enough for AOL to make its big move–whatever that is. “I hope they beat each other’s brains out over search and leave the display market to us,” Falco said in remarks at the Interactive Advertising Bureau annual conference. “I think it’s a mistake. But I think Napoleon said never interrupt your enemy when they’re in the middle of making a mistake.”

In a story first reported by BoomTown’s Kara Swisher, AOL announced its now semi-annual winter holiday layoffs this morning, disclosing plans to sack about 20% of its total work force–2,000 of its 10,000 global employees. Like those that have preceded it, the latest iteration of the plan to shift AOL’s business model from a subscription-based ISP to an advertising-supported Web company also involves shifting employees from AOL’s offices to the bread line.

In a letter to employees, AOL CEO Randy Falco thanked AOL “colleagues” affected by the reduction, promising to smooth their transition to unemployment with a bit of career counseling and “what we believe are generous severance packages.” Generous, in this case, being a handy euphemism for two months salary and the inescapable financial stress that goes along with it, as well as the always unquantifiable “thanks and respect for their contributions to the company.”

So, 2,000 AOLers felled by normal involuntary attrition. This in addition to the 5,000 that were released into the wild last year. To what end? Says Falco, “So where is this taking AOL? Put simply, my vision for AOL is to build the largest and most sophisticated global advertising network while we grow the size and engagement of our worldwide audience. We’re only a year and a month into our transformation, and the turnaround has been dramatic. We’re now in a position to win as an advertising-supported business. We have a bright future as a company if we can execute on this vision.”