• by Gavin O'Malley  @mp_gavin, January 28, 2009

Blaming the worsening economy, AOL plans to lay off 10% of its workforce, CEO Randy Falco said in a letter to employees Wednesday.

"Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars," Falco said in the letter.

The layoffs, which Falco said will take place over "the next several quarters," will likely result in the loss of some 700 jobs at the long-struggling Time Warner unit. In addition, AOL has ruled out "merit raises" this year, and plans to reorganize internationally and consolidate office space in Mountain View, Calif. and Los Angeles.

An AOL spokesman said the company would not comment on the layoffs.

Putting the news into a larger context, Falco said AOL was "two years into a three-year turnaround plan."

"Since day one, our strategy has focused on building and growing mutually dependent publishing, advertising and social media businesses to take advantage of the shifting media landscape," Falco added. "In addition to focusing our investments, a successful turnaround plan also requires us to realign our cost structure against this three-pronged business model."

Along with a review of its international operations, Falco said that AOL plans to review all of its products and services.

Hitting at least one positive note, Falco said the reorganization would likely give AOL the "flexibility to invest in our growth strategy."

Few companies have been immune to the present economic downturn. Even Microsoft, which has long resisted massive layoffs, just announced plans cut 5,000 jobs--or 5% of its workforce--over the next 18 months.

For AOL, however, such bloodbaths have almost become standard practice. Most recently, it cut some 2,000 jobs worldwide in late 2007.