Once upon a time, America Online (NYSE:AOL) seemed poised to rule the digital world. Today, a shrunken version of the Internet giant that once purchased Time Warner (NYSE:TWX), can’t even keep users interested in its pioneering instant messaging (IM) service, AIM.
According to figures published by Business Insider, AIM shed nearly 8 million users — a decline of 64% — between January 2011 and January 2012, leaving just 4 million people IM’ing through AIM.
AIM’s decline can be partially attributed to the rise of other social media channels, including Facebook and Twitter. Indeed, Business Insider noted that IM applications from other Internet players, including Microsoft’s (NASDAQ:MSFT) Windows Live and Yahoo’s (NASDAQ:YHOO) Messenger, also showed steep drops in the number of users — down 48% and 34%, respectively — during the same period. Overall, the total users of IM applications fell by 29% during that time.
Still, AIM’s defections outpaced all other IM applications. Business Insider cited an unnamed source purportedly from AOL’s product development group that laid the blame at the feet of AOL CFO Artie Minson, who “won’t let [the AIM team] launch new products.”
Last month, The New York Times reported that AOL laid off at least 40 employees from its West Coast operations, with the largest number hitting the AIM group. The Times quoted an unnamed source at AOL who said the cuts had devastated AIM, which was left “eviscerated and now only consists of support staff.” The source added that “nearly all of the West Coast tech team has been killed.”
According to the Times, the layoffs included Jason Shellen, vice president of AOL’s messenger products. Other sources inside AOL told the Times that the cuts were part of an effort to drive down annual costs of maintaining AIM, which generates about $50 million a year in revenue for AOL. To increase the service’s profit, costs would go from an annual $25 million to $2 million or $3 million. The cost-cutting was attributed to CFO Minson’s efforts to reorganize the company. Minson had taken the messaging group under his personal direction, the Times said.
AIM’s decline represents another lost opportunity, according to Business Insider, which noted that some observers thought the service could have been developed into a rival to Skype, the Internet phone application, purchased last year by Microsoft for $8 billion.
AOL’s current market value is roughly $1.75 billion. Ironically, Skype’s own IM app grew its total users by 8% over the last year. And Google’s (NASDAQ:GOOG) Talk IM app added 31% more users, Business Insider noted.