By Kenneth Li and Supantha Mukherjee
NEW YORK/BANGALORE (Reuters) - AOL Inc will cut more than 900 jobs, or nearly 20 percent of its global workforce, as it struggles to catch up to Google Inc and Facebook.
AOL, which has 5,000 workers, will cut about 400 jobs in India, outsource another 300 there, and eliminate 200 jobs in the United States, a source close to the company said.
Once known as the training wheels of the Internet for tens of millions of people, AOL had more than 20,000 workers at its peak.
But since the 2001 takeover of Time Warner Inc and its spin off in 2009, the AOL saga has been one of precipitous decline as generations of Web start-ups overtook the once mighty giant. Zynga, the privately held social games company, said on Thursday it planned to double its staff to 200 employees in India.
"We want to run a profitable, growing, content-driven advertising-driven company and not mask that with access cash," AOL Chief Executive Tim Armstrong told an audience of media executives in New York, confirming the cuts.
Armstrong is attempting to reshape AOL from a company known for its dial-up access business to a media and entertainment powerhouse that relies mainly on advertising.
"You can't be great in our business if you don't go to sleep every night thinking how are we are going to make magical content for people in the morning," he said.
Yet AOL's ad revenue has declined steadily. During the fourth quarter it fell 29 percent to $331.6 million on drops in search, display and third-party ads. Armstrong warned that advertising revenue would fall as the company restructures its sales force and ad inventory though he signaled display and branding advertising sales should return to growth later this year.
AOL's share of overall display ad revenue in the United States fell to 5.3 percent in 2010, down from 6.8 percent, according to estimates from research firm eMarketer. Meanwhile Google and Facebook increased their share of the display ad pie to almost 10 percent and 14 percent, respectively in 2010.
The cuts come two days after AOL completed its acquisition of The Huffington Post news and commentary website for $315 million.
Arianna Huffington, the pundit and founder of the influential website, took over AOL's editorial operations as part of the deal.
Since the acquisition on February 7, AOL shares are down about 8 percent.
"We want to go from taking arrows to catching arrows," Armstrong said. "Today is a difficult one for our company."
He added: "AOL will turn around."
In India, 300 jobs will be transferred to contractors MindTree Ltd and Hewlett-Packard Co, another source told Reuters.
In the United States, AOL plans to cut jobs in the media and content-production areas, leaving advertising sales and network operations positions untouched, according to the source reporting the 900 job cuts.
The source said the company planned to bolster the ranks of its full-time journalists and move away from a reliance on freelancers.
Through the global economic recession, AOL prided itself as one of the biggest recruiters of out-of-work journalists as a severe decline in advertising revenue in the newspaper industry wiped out newsrooms across the United States.
Armstrong said AOL had hired 1,300 journalists last year and the company plans to hire more full-time.
For now, there are no more cuts on the horizon, confirmed Armstrong, although he added that could change. "In our situation we don't have the luxury of long-term planning," he said.
AOL shares were down 1 cent at $19.33 in afternoon trading on the New York Stock Exchange.
(Additional reporting by Jennifer Saba in New York and Himank Sharma in Bangalore; editing by John Wallace, Derek Caney and Gunna Dickson)