• by Mark Walsh  @markfwal, September 25, 2006

AOL is replacing its main business units with smaller groups, giving greater autonomy to product managers as the Internet company shifts to an advertising-based business model.

In changes outlined in an internal memo last week by CEO Jonathan Miller, AOL will reorganize its four existing business units, including ones for access, AOL Europe and audience. "Starting last month our whole company became an 'audience business," wrote Miller.

Last month, AOL decided to abandon its subscription service in favor of a mostly free ad-supported business to better compete with big Internet media players such as Yahoo and MSN.

AOL's reorganization, which will take effect in January, is the first significant restructuring the company has undertaken since November 2004, when it began making some content available for free.

Last week, Ted Leonsis, who heads the audience unit, announced his plans to give up day-to-day management responsibilities in January but remain as AOL vice chairman. At least three key executives who reported to Leonsis will now report to Miller, including Kevin Conroy, Jim Bankoff and Mike Kelly.

Joe Redling, who heads the access unit, will instead oversee AOL's international business, mobile services and relationships with free and paying customers. Miller called mobile a platform that "over time, will be as important as the PC." He also said that mobile product development would be centralized within AOL for now to make more rapid progress.

AOL will also announce its first chief privacy officer after recently disclosing the Internet searches of more than 650,000 subscribers. It will also name a new general counsel this week.