AOL will lay off about 2,000 employees, or approximately 20% of its staff, as it continues its transformation into an online, ad-supported business and moves further away from its traditional revenue model based on dial-up Internet access fees.

The layoffs will begin on Tuesday and will continue over the coming months, CEO Randy Falco said in a memo sent to employees on Monday and obtained by IDG News Service.

The staff reductions will allow AOL to increase its investments in "high-growth areas of the company," Falco wrote.

"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," the memo reads.

"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," Falco wrote.

Whether AOL can truly meet the expectations that its parent company Time Warner Inc. and its investors have for it as an online ad-support business is still uncertain.

In August, when Time Warner issued its second-quarter financial report, some observers were surprised that AOL's online ad revenue grew only 16% during the quarter, well below the about 26 percent growth of U.S. online ad spending that quarter.

This prompted speculation that Time Warner might be inclined to spin off AOL or sell it, but in September, Time Warner Chairman and CEO Richard Parsons dismissed the rumors.

Parsons said Time Warner wants AOL to complete successfully its transition to an ad-supported business, taking full advantage of the opportunity in the vibrant online ad market, and isn't currently considering selling it or spinning it off.

"We're doing better than I had hoped [with AOL] but we still have a long way to go. We have to make sure we stay tightly focused there," Parsons said then at a Goldman Sachs conference, responding to questions from a financial analyst.

While acknowledging that it's likely that Time Warner will at some point sell off AOL's ISP (Internet service provider) business, he said that wouldn't happen for at least a year or 18 months.

One reason is that the Internet access business, although shrinking, still accounts for a majority of AOL's profits and a substantial portion of the traffic on the AOL network of Web sites still comes from access subscribers, he said.

The IDG News Service is a Network World affiliate.

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