The real story: Falco freely admits he knows nothing. "I don't know anything," he told Carlson. Who's Yahoo's next CEO? "I don't have any idea." Falco, the boss of a fallen company that is nonetheless one of the largest sellers of advertising on the Web, is out of the loop, clueless, unplugged. He has no bits of gossip to trade one one of his biggest competitors, no spin to offer. Why should he? Time Warner has plainly put AOL up for sale behind Falco's back; Falco is just punching the clock as he presides over AOL's disassembly.

What's odd is that Time Warner CEO Jeff Bewkes isn't getting more criticism for AOL's numbers. As the head of HBO, he was one of a handful of Time Warner executives who loudly opposed the AOL deal. But enacting Time Warner's revenge on AOL by driving the business into the ground seems a strange way of making things right with shareholders.

Bewkes's hand-picked boss for AOL, former NBC executive Randy Falco, has been a complete disaster — a short-timer waiting for the company to be sold. Bewkes and Yahoo's Jerry Yang have been holding desultory talks on selling AOL to Yahoo. But Bewkes's negotiating position is considerably weakened by these results. Why didn't he sell sooner — and when will he pay the price for mismanaging AOL?

It's as if he thought that playing a game of buzzword bingo would masquerade as strategic thought. A television salesman by trade, Falco was plucked by Time Warner CEO Jeff Bewkes from NBC Universal to replace Jon Miller, in a universally derided move. A commonly held belief among insiders: Falco and Bewkes thought AOL would be sold off by now, with Falco moving on to some role at Time Warner's film and television properties. AOL has continued to embarrass. And so has Falco. The only question is which exit will come first.

AOL is getting ready to have major layoffs again. After a so so report card rumor has it that they are selling their MTC & DTC data centers and will be contracting all of the services out to Emcor. There are way too many managers and a lot of them are expected to get laid off. After attending meetings it appears that upper management has finally realized they are way too many managers in technologies and that it would be better to contract central config, asset management, IPE's and SI.Operations is going to take a big hit.

MTC and DTC are datacenters based in Manassas, Va., and the vicinity of Dulles Airport, respectively, near AOL's former Northern Virginia headquarters. Emcor is, as best we can tell, a facilities and construction manager better known for doing the wiring on datacenters than running a network operations center. It's not clear how AOL's websites will fare during a transition to a new, inexperienced Web host. AOL employees: You've got layoffs. AOL users; You've got fail!

(Photo of AOL server farm via KK)

Candidates for the job who currently work at Microsoft include SVP Yusuf Mehdi, once Microsoft's online chief; Brian McAndrews, the former CEO of Microsoft-acquired aQuantive; SVP Satya Nadella, who runs search engineering, among other responsibilities; and Bill Gates's replacement as chief software architect, Ray Ozzie.

"Yusuf is not an operator and Satya is a possibility but would be a stretch," a source tell us. "I would bet on Brian McAndrews. But McAndrews might not want it as he made serious bank with the sale of aQuantive and may not want to do more than he has to finish his earn out. I mean, what’s the marginal upside for him?"

As for Ozzie, Kara Swisher quotes all kinds of Microsoft developers who hope he'd take the job,but another source tells us: "I think he's got the gig he wants: basically, being a visionary. And he's great at it."

One problem with Ozzie, says our source: "Only thing I've heard so far is [the candidates are] not internal." So scratch Ozzie and the rest off the list!

"My guess is they'd want to poach from Google, for appearance's sake," says our source. He suggested we take a look at ex-Microsoft employee, Mark Lucovsky — head of Google's search APIs. The problem with Lucovsky is that Microsoft CEO Steve Ballmer might not want to take him back — he reportedly threw a chair when he heard Lucovsky was leaving Microsoft for Google in 2005.

Swisher's Microsoft sources also nominated former Yahoo COO Dan Rosensweig for the job, but a source says: "Dan would never do it given loyalty to Yahoo."

So who's it going to be? The people we talked to gave us the usual boring non-answers — "I imagine Microsoft might take a little time to really look around. There is no massive rush." So we'll suggest another scenario: Why doesn't Microsoft pull a Sandberg?

Sheryl Sandberg was a relatively obscure VP at Google, but she had an important job — overseeing the automated systems that pulled in Google's billions of dollars in advertising revenues.

Our guess: Someone from AOL, possibly Lynda Clarizio, boss of AOL's Platform-A advertising division. Microsoft seems eager to buy AOL —AOL dealmakers met with Microsoft in Seattle last week, and yesterday, AOL started cutting costs in an effort to pretty itself up for a sale — and Clarizio would probably be the top executive to come over in the deal.

AOL CEO Randy Falco wants to get a Hollywood job at Time Warner after putting in his time at AOL. His henchman, Ron Grant, has lost favor of late. Is Clarizio too salesy for the top online job at Microsoft? Probably, but then, there is evidence Microsoft CEO Steve Ballmer might not mind.

(Photo by adpowers)

Bewkes has been trying, on and off, to swap AOL and a fistful of cash for a 20 percent stake in Yahoo, which would help CEO Jerry Yang fend off both Microsoft and Carl Icahn. Yahoo executives aren't particularly interested in having AOL's aging Internet assets dumped on them to manage — but they were eager to buy Bebo, particularly Yahoo Europe head Toby Coppel. Yahoo has a deal to sell ads on Bebo in Europe, a deal that most expect AOL to do away with after it expires. Buying Bebo serves to makes AOL more attractive to Yahoo — and if that gets AOL off Time Warner's back, then it may be $850 million well spent.

It's clear that the industry is in a state of extreme flux. Each day brings new rumored combinations of companies. But what's not surprising is AOL's appeal in this rapidly changing environment. The market is recognizing the value of what we've built together over the past year and a half.

Dear AOL colleagues,

I'm sure you've read some of the recent news speculating about potential AOL partnerships. While the company can't comment on any discussions at this time, I'd like to provide some perspective on the industry and AOL's position in the market.

It's clear that the industry is in a state of extreme flux. Each day brings new rumored combinations of companies. But what's not surprising is AOL's appeal in this rapidly changing environment. The market is recognizing the value of what we've built together over the past year and a half, as we've shifted from a subscription model to an advertising-supported business. It's a remarkable transition that is gaining momentum with each passing week. Our focus on capturing growth in three key areas - publishing, advertising and social media - is beginning to pay off.

In publishing - which includes Programming, Products and Platforms - our focus has been on growing audience size and engagement. The results have been very encouraging. In February, AOL had its fifth consecutive month of growth, with page views up 16% over the same period in 2007. Thirteen of AOL's content sites - such as Music, Television, News, Money & Finance and Celebrity - rank in the top 5 in their respective areas. Our rejuvenated Programming and Products appeal to people who now roam widely for what they want on the Web and align more closely with the kinds of passionate audiences marketers need to reach. The result is that AOL is now attracting a younger, more engaged and more valuable audience than ever before.

In advertising, we're focused on building the most effective and efficient marketplace for buying and selling digital advertising. Platform-A combines some of the strongest assets in the digital advertising business into a unified solution for marketers to build their brands and publishers to monetize their content. By integrating the reach of Advertising.com with the relevance of our industry-leading targeting technologies and the richness of AOL's content network, Platform-A will connect marketers to their audiences with engagement, efficiency and ease. Delivering on this means we need to move even more quickly to integrate the Platform-A companies into a seamless organization. In the three weeks since her appointment, Lynda Clarizio has moved quickly to announce the formation of one aligned sales organization that will have the ability to sell advertising solutions across Platform-A, supported by vertical teams focused on our content areas and product teams focused on selling individual products. To make it easier for advertisers and agencies to work with us, we now will be offering the ability to buy media across Platform-A with one contact and through one sales force.

In the social media area, we're focused on empowering a truly social Web with programming and tools that help connect people, cultures and lifestyles around the world. Bebo, together with AIM and ICQ, will create a social media network reaching 80 million people worldwide. This is a young and fast-growing market with huge potential. But despite drawing large, engaged audiences, other social networks have not been able to make the experiences relevant to users and marketers alike. Our opportunity involves integrating social media with our publishing and advertising networks to create more relevant content for the Web audience and more relevant marketing for advertisers. While the Bebo deal hasn't closed yet, I'm looking forward to sharing more about the many opportunities I believe exist for Bebo in combination with some of AOL's most exciting assets.

Our collective rebuild of AOL over the past year and a half has positioned the company to prosper in this dynamic market. We know that strong, profitable companies have more control over their own fate. We still have more work to do toward this end. So I want to ask you today to stay focused on the work at hand: continuing our transformation of AOL into a global advertising-supported Web business.

Randy

For fast-growing stocks, analysts sometimes calculate PEG, or the price/earnings to growth ratio. Instead of valuing a company on current earnings, PEG attempts to take into account future earnings. Bebo's earnings grew 67 percent last year. That gives Bebo a pricey PEG of 2.38. Google's is running at 0.61 after its recent stock drop. Why didn't AOL just hold onto its Google shares instead of selling them in 2005? That way, it would have at least kept a piece of Orkut.

• Bebo ranked 4th among a custom category of 55 social networks, after MySpace, Facebook and MyYearbook for Feb-08 receiving 1.15% of all U.S. visits to the category.
• MySpace's share of U.S. Internet visits was 67 times larger compared with Bebo and Facebook's share of US Internet visits (among all categories) was 11x that of Bebo in Feb-08.
• Bebo's share of U.S. Internet visits is down year on year. Share of U.S. Internet visits (among All Categories) to Bebo were down 23% last week and down 22% in Feb-08.
• The average time spent on Bebo in Feb-08, was 30 minutes and 26 seconds, more than both MySpace (30m7s) and Facebook (21m0s). The average time spent on the site is flat year-over-year, MySpace is slightly down and Facebook is up 69%.
• 22.15% of U.S. visits to Bebo last week came from MySpace last week.

I work for AOL in Dulles. AOL celebrated the start of the new year by cutting the budget for watering all the indoor office plants all over Dulles. We came in to find "adopt a plant" posters hung up in the common areas with a corny rhyme about not letting the plants die. Now they're starting to wilt and go black, leaning helplessly against nearby walls or concrete pillars. It's pathetic. Some people inquired about taking them home (there are nice established ficus trees and palms etc.) and were told to either water them, or let them die, at which point they would be removed. I hate symbolism at work.

Another tipster tells us that a "friend of mine who worked at Lexmark said that they fired their janitorial staff. Told employees to take out the trash. Now instead of paying someone $5 an hour to do it, they were paying him $30 an hour." Excellent cost-saving measures all around.

(Photo by brionv)

Word has it that during an earlier presentation at the IAB conference, Microsoft ad exec Brian McAndrews left AOL off a list of competitors. Falco didn't take it well. He said, "Microsoft and Google can ignore us and leave us of charts if they want, but they do that at their peril."

It's over a year since I came to AOL. When I arrived it needed work. More than I expected. Pageviews were in decline. Products were behind and underinvested. Advertising needed investment. I needed to rebuild AOL. Let me highlight progress. We upgraded products. We've refreshed programming. Everything was trending downward on AOL Search; changes have turned these trends around. Internationally, there's upside for AOL. Our ad network reaches 9 in 10 Web users in the U.S. We invested $800 million on advertising. Cutting costs and laying off people is about resource allocation and being smart. I feel really good. I'm making progress. Happy holiday.

Not only does Falco redirect the corporate jet for his own convenience and move the company headquarters closer to home. He also takes credit for others' accomplishments, and approves of mocking people who just lost their jobs. No wonder rumor is that he's got a bright future ahead of him at Time Warner.

Some insiders doubt this, expecting Falco to retire instead and saying it's premature to speculate on Viebranz's future. Certainly, Falco and Viebranz have plenty of opportunities to screw up and nix these moves. But I'm most fascinated by the man who's left out in the cold in any scenario being whispered: Ron Grant, AOL's COO and Falco's so-called "human computer." Apparently Time Warner management views him as fit for number-crunching and payroll-slashing, not actual leadership material.

Dear AOL colleague,

Just over a year ago, AOL embarked on an incredibly complex and significant transformation as we fundamentally shifted our business model from a subscription-based ISP to an advertising-supported Web company.

Today, I want to give you an update on where we are in this transition, and talk about further actions we're taking and where we're headed as a company.

When I came to AOL, I knew we had to take several steps to complete our company's transformation.

We aggressively expanded our advertising capabilities, building on the strength of Advertising.com and our premium ad sales force. We acquired three leading-edge advertising companies-ADTECH, Third Screen Media and TACODA-and formed Platform-A. AOL now has one of the largest and most sophisticated ad networks in the world, and we're well positioned to compete where the ad market is heading.

We rebuilt and revitalized our key products, programming channels and platforms. And unique visitors to AOL.com, News, Food, Money & Finance, TMZ, Moviefone, MapQuest and many other sites are up. Our products are once again creating buzz in the market. And to reach the widest audience possible across the Web, we're unbundling our products and programming so users can take them along wherever they go online.
Importantly, we're taking the business global. We're extending AOL's reach into seven new countries this year while globalizing our product development efforts. By the end of next year, AOL will have a presence in 30 countries. That's a remarkable achievement in a relatively short period of time.

We refocused the business around three core areas - Platform-A, Publishing and Access - and are now managing these as three distinct but related components.

Here's why this is important. With Platform-A, we can offer advertisers the most advanced set of solutions across our extensive network of owned-and-operated sites and third-party sites. Publishing provides us the products, programming and platforms we need to sustain a healthy owned-and-operated network. And our Access business continues to be profitable, providing us cash flow to invest in other areas of the business, and it's an important source of primary e-mails and page views.

The last important piece in this transition is the realignment of our costs against these three businesses so we can operate as efficiently and effectively as possible. This is in many ways the most difficult step, but a necessary one.

As a part of this realignment, tomorrow we begin a reduction in force that will, over the next couple of months, affect a total of about 2,000 people out of our worldwide workforce of 10,000.

Everyone impacted by this reduction deserves our thanks and respect for their contributions to the company. We will aid these individuals in their transition to new opportunities as much as possible, most importantly with what we believe are generous severance packages.

This realignment will allow us to increase investment in high-growth areas of the company - as an example, we added hundreds of people this year through acquisitions - while scaling back in areas with less growth potential or those that aren't core to our business, as we did with the sale of Tegic.

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.

Falco and Grant, of course, run AOL in name only. Chaos and rumor are really the ones in charge. Having misjudged the extent to which they need to slash AOL's payroll, Falco and Grant may be preparing to follow tomorrow's widely expected layoffs with another round in December.

Not out of mercy, as Silicon Alley Insider seems to suggest, but out of sheer disorganization. Some departments, in the midst of one of the Internet giant's permanent-seeming reorganizations, have pleaded for more time in figuring out where to cut staff. Programming is one area on the bubble; despite the edge AOL has built in developing original content like the Live 8 concerts, largely under prior programming chief Kevin Conroy, some say that under the new regime, with Bill Wilson in charge, the department will be put on "maintenance mode."

Relatively safe — for now, at any rate:

• Advertising sales Save for some rationalization as Advertising.com, Tacoda, and other groups get merged into the new Platform A unit, this area's seen as a strength for AOL.
  
• Products Email will get more attention.
  
• Recent acquisitions AOL's collected a number of interesting startups like Truveo in video search and Userplane in widgets, but it hasn't done much with them. Expect that to change.

That's the good news, small as it is. The bad news? Uncertainty and fear, the true bosses of AOL, will continue to reign until December.

Whatever the case, we salute you, Lance. Most human-resources chiefs are faceless bureaucrats content to implement whatever hiring or firing plans are handed to them. By standing up both your overworked team of HR workers, who are struggling just to put together severance packages for all of AOL's planned firings, as well as all for all of AOL's employees, you've made yourself a hero.

Yes, I'd argue. If only because it's a case study in the promise and perils of being on the edge of things. In the '80s and '90s, being an outsider and underdog helped AOL, as Kara Swisher chronicled in her book aol.com.. The conventional wisdom was that America Online would fail. And yet, time and again, it succeeded — because, isolated from the rest of the tech industry, the voices of AOL's customers rang louder in employees' ears. Hearing them out was the company's secret weapon against Microsoft and the rest.

Somewhere along the road, though, AOL stopped listening. Hubris? A lot of that, for sure. Was it the merger with Time Warner? Admittedly, a distraction. The inevitable decline of the dial-up business? When you start thinking of your customers as cash flow, paying attention to their wants and needs is just another cost center.

That AOL is reorganizing all of its online-advertising units into a new business, Platform A, and moving its headquarters to New York suggests that the customer it wants to listen to these days is Madison Avenue. Rumors that AOL may make large cuts in its programming and products divisions suggest that users are not at the top of the priority list.

I'm not going to ding a capitalist enterprise for bending its ears towards the jingle of money. But from what I've gathered, there's not a lot of listening going on in AOL's Dulles headquarters. Or talking. Let's change that, shall we?

Your bosses may not be talking to you, AOL employees, but I'm all ears. Family business, fortuitously, has brought me to your neighborhood. (Or is my cousin's bar mitzvah just a cover story? I'll let you decide.) I'm a quick drive down the Dulles Toll Road. Let's get coffee. Drop me a line.

Dear AOL colleague,

A little over a year ago, AOL announced its new strategic direction as a global advertising supported Web business. And with a series of announcements we're making today, we are - at last - fully embracing our new direction as a company.

When Ron and I came to AOL, we quickly realized that the advertising industry was undergoing a rapid transformation as audiences fragmented across the Web and advertisers increasingly demanded sophisticated tracking, measurement and targeting tools. To compete, we needed to build the biggest and most sophisticated advertising network — one that reached out across the entire Internet, not just AOL's piece of it. So, building on Advertising.com, which operates the largest third-party display network, we acquired TACODA, which has industry-leading behavioral targeting tools and its own third-party network. We also acquired ad-serving company ADTECH, and Third Screen Media, which gives us a platform in the mobile space.

We are now bringing all this together in a new entity called Platform A. With Platform A, we can offer state-of-the-art targeting, optimization and measurement tools across our network of third-party sites and our AOL network. These networks attract more than 90% of the domestic online audience. For advertisers, Platform A means advertising programs with more scale and better results. For publishers selling online ad inventory, Platform A means more revenue, more certainty and better transparency.

This is the next big step in our transformation to a full-fledged, consumer-driven Web business. In addition, all our products and programming groups will work closely with Platform A to make sure everything we do as a company is optimized for monetization.

Curt Viebranz will head up Platform A. Curt comes to AOL from TACODA, the behavioral targeting company AOL just acquired, where he served as CEO. He's a seasoned media executive with substantial print, TV and online experience in both the U.S. and abroad, having spent 17 years at Time Warner and Time Inc. before joining TACODA.

In this new role, Curt will be reporting to Ron. Rounding out the leadership of Platform A will be Lynda Clarizio, who will continue to head Advertising.com, and Kathy Kayse will head AOL brand solutions, which will focus on the top online brand advertisers. Both Lynda and Kathy will report to Curt.

Mike Kelly will not be part of the new organization, but will be staying on to help in the transition as he assesses other opportunities. I want to take a moment here to recognize Mike's many contributions to the success of AOL and the important part he played in our transition to an ad-supported business.

In his three years at AOL, Mike systematically rebuilt relations with major advertisers, revitalized our sales force, made critical acquisitions, and on his watch AOL's ad revenues more than doubled. He also played an important role in identifying the trend toward third-party networks, and in particular seeing the value in Advertising.com, which Mike helped AOL acquire in 2004. And he worked closely with Ron and me on the evolution of our network strategy this year and the series of acquisitions we made during this period to realize this vision. We've been lucky to have Mike as a part of our team and we wish him the very best in the next chapter of his career.

The next piece of important news is that we will be moving AOL's corporate headquarters to New York City from Dulles. We're an ad-supported business now, and New York City is the world's capital of advertising. By putting our headquarters there, we're sending a clear signal to the market that AOL intends to lead in this space.

We've leased offices at 770 Broadway, and the space is already being built out. Our plan is to have our New York operations - advertising and programming, as well as our executive offices - moved in by early next spring.

I know this change raises questions for many of you, not all of which I can answer here. Suffice it to say that for most of you, this won't affect your jobs at all. We will continue to have a significant presence in Dulles, and we will continue to have operations in Mountain View, Bangalore and our many other locations.

I'm also pleased to report that while we are making these changes at home, we continue to deliver on our aggressive global expansion plans. Today, in fact, we announced a significant new partnership with HP - the No. 1 PC maker in the world - that will pre-install localized versions of our AOL portal, toolbar and search, and set them as the default on millions of HP computers sold in more than two dozen countries.

This multi-year agreement with HP gives us a way to quickly and effectively showcase our products around the world. And by expanding our audience reach and engagement worldwide, we can extend the reach of our advertising network to monetize this global audience. This comes on the heels of our Italy portal launch, and just days before we launch another new portal in Spain.

In addition to this, we continue to make impressive strides across our programming, products and platforms. Today, for example, we unveiled our impressive new Bluestring product at TechCrunch40. All of this is generating positive buzz about AOL in the market and getting even our toughest critics to take a second look at what we're offering.

AOL has been undertaking one of the most complex transformations any major company has attempted, and we are doing it very successfully. We have a great future, and by completing our transformation, we are positioning AOL for long-term success as a global ad-supported business.

Randy

Since he started at AOL he has been diverting the AOL shuttle, which runs between Teeterboro and Dulles, to White Plains whenever it suits him. I guess that got to be too inconvenient for him, so they've set up jars in the cafeteria so employees can contribute a little extra to the "Get Poor Randy a Jet" campaign. It's actually kind of touching. A lot of people I know are more than willing to give up their jobs for this noble cause — as long as we get decent severance packages.

In a memo sent out today, he instructed employees that "As much as possible, you're encouraged to make it an e-mail-free, long holiday weekend."

What a nice gesture! Or is it? Employees see it as an omen of things to come.

Our tipster reports:

I work at AOL, and we just got a memo from Ron Grant... he invited everyone to take "a long, email-free holiday weekend", which those of us who are afraid of the safety of our jobs (so everyone) read as "Stay off the internet for a couple of days. We wouldn't want you to hear about the downsizing of your department until after Christmas." Also, I'm still asking around, but I can't find anyone who got a holiday bonus.

Ho ho ho!

Full email after the jump.

Subject: A Head Start On the Holidays

Dear AOL Colleague:

With the holidays now so close, and many already getting on the road to see family and friends, all employees, except those deemed "essential personnel," should feel free to finish up your work early on Friday, December 22, and get a head start on enjoying time away at about noon in your respective locations. As much as possible, you're encouraged to make it an e-mail-free, long holiday weekend. Our thanks this time of year go especially to those personnel who keep AOL services humming 24/7, even through the holidays. And to everyone, best wishes for a happy and safe holiday season.

Ron Grant