After a while–in a BoomTown mangling of the old cliché–if you are a nail, everything begins to look like a hammer.

So, it is probably inevitable that the next thing for much-beleaguered AOL staffers to start rumbling about is 2,000 people getting laid off next week, as was reported earlier this week by Silicon Alley Insider.

After all, the Time Warner (TWX) unit has a long history of whacking employees. So, it is easier to assume things will not be different under the regime of the latest CEO Tim Armstrong.

Except it’s not actually true that such massive cuts are in the offing, since–as many sources I spoke to said–Armstrong is only in the early part of figuring out what to do about the cost structure of AOL, after laying out a company strategy and rejiggering management recently.

While the end result of the cost-to-benefit analysis might, in all likelihood, mean layoffs of a chunk of its 7,000 employees–a larger number for its smaller operations.

And, after all, staff costs are one of the biggest line items in AOL’s budget–sources at the company said Armstrong will not rely on simply cutting jobs to craft a more attractive budget for its upcoming spinoff.

Still, there is obviously a lot of pressure on Armstrong to get the financials–which are still largely dependent on AOL’s declining, but money-generating, access business–looking pretty.

That access business did almost $2 billion in revenue last year–about half its sales–and it represented almost all its profits.

In contrast, AOL’s advertising business lagged, dropping hugely over the last several quarters.

Still, Armstrong has laid out a strategy that has included, in part:

Being a new kind of content giant, via a series of branded niche media sites, with about 500 full-time writers and editors and 1,500 freelancers; selling premium display advertising on these sites and strengthening its third-party self-service ad network business; finding a way to use its communications properties to redistribute traffic to other properties in a kind of virtuous circle.

There are also local, analytical and venture elements. But–for all intents and purposes–Armstrong’s plan is a content-and-advertising model, supported for now by the dwindling piles of cash from the access business.

That’s why, of course, costs are the next item on Armstrong’s to-do list.

“The cost structure is the last part of what was going to be dealt with, as Tim has told everyone,” said one person close to the situation about the former Google (GOOG) exec. “But, if it is slash-and-burn only, that would be pretty short-sighted.”

Perhaps, except that it is that exact tactic that has been business-as-usual at AOL for far too long.

In Web years, BoomTown is now officially 143 years old.

Why? Well, I was the one who got to write the big Page One piece in The Wall Street Journal after GeoCities was sold to Yahoo in January of 1999 for $5 billion in stock.

GeoCities was, in its way, the Facebook of its time.

But instead of “friends,” its users were “homesteaders,” since the Web then was a place to be pioneered and settled.

As Cher so eloquently sings: Those were the days my friend, we thought they’d never end.

Except they did. Yahoo (YHOO) announced yesterday that it was closing the GeoCities unit down, part of new CEO Carol Bartz’s war against useless assets at the troubled company.

But a full decade ago, the Yahoo-GeoCities transaction was a big, big deal, struck at the peak of the Web 1.0 bubble.

The move shook up the then-Internet landscape, in which Yahoo was the undisputed king.

The sector then had begun to rapidly consolidate, as stronger players snapped up weaker ones in a race for market share.

The Yahoo-GeoCities deal closely followed another deal in which At Home, a high-speed Internet access service, bought search and directory service Excite for stock valued at $6.7 billion. In another key deal at the time, then-independent America Online agreed to buy Netscape Communications for stock then worth $4.2 billion.

Of those then-dominant Web companies, only Yahoo and AOL–now a troubled unit of Time Warner (TWX)–survive relatively intact.

And, what exactly did Yahoo get for its giant payment back then? A money-losing, low-revenue company with a whole lot of users.

At the time of the purchase, the publicly-traded Marina Del Rey, Calif., company had reported that fourth-quarter sales increased to $7.5 million from $1.7 million a year earlier. But the company’s loss had also swelled, to $8.4 million from $3 million, in the year-earlier period.

Sound familiar to some current Web 2.0 stories? I thought so.

Another weird irony: One of GeoCities major investors was a venture firm called Flatiron Partners, whose principal, Jerry Colonna, was on the board.

And who was Colonna’s parter? Well, Fred Wilson, who has a different firm now called Union Square Ventures and is–wait for it–one the the major investors in the 2009 hotsy-totsy start-up, Twitter.

(You can read Wilson’s terrific take from the VC perspective of the GeoCities experience here.)

In other words, the more things change… Well, actually, they don’t change.

So, if you want to take an instructive trip down memory lane, here is my piece below, which appeared in The Wall Street Journal on Jan. 29, 1999:

Those Who Tied Fortune to GeoCities Yell Yahoo! All the Way to the Bank

By KARA SWISHER | Staff Reporter of THE WALL STREET JOURNAL

Last spring, Thomas R. Evans was nervous about leaving his longtime job at the top of a powerful Manhattan media company for an Internet start-up near the beaches of Southern California. So he talked to his boss, real-estate and publishing tycoon Mort Zuckerman.

“I was wondering if this whole Internet thing was real and sustainable,” says Mr. Evans, then publisher of the Atlantic Monthly and U.S. News & World Report. “I wanted his blessing in a way.”

Virtual Payoff

Mr. Evans got Mr. Zuckerman’s nod–and a lot more. You know the drill by now (though it may not be getting any easier to hear). He became chief executive officer of GeoCities , an electronic casbah of about 3.5 million Web sites, and helped lead its initial public offering last summer. Then Thursday, Yahoo! Inc. agreed to buy the young company for about $5 billion in stock. It means the value of Mr. Evans’s stock options soared by 65% Thursday to a dizzying $200 million.

Yahoo! Agrees to Buy GeoCities in $5 Billion Stock Transaction

That’s some kind of money for nine months’ work. After you’re done banging your head on a wall, consider that members of the new financial elite in Silicon Valley are being created in less time than it takes for a kid to finish his first-grade year. That puts oil, real estate and finance magnates to shame. Mr. Zuckerman, for example, spent a lifetime building his $1 billion financial empire.

Asked how he was doing Thursday, Mr. Zuckerman says: “Not as good as Tom Evans.”

Mr. Evans, who commutes between GeoCities’ Marina Del Rey, Calif., headquarters and his home in New Canaan, Conn., is quick to point out the ephemeral nature of his wealth. He must wait six years for his options to be fully vested. And his net worth could evaporate if Yahoo’s highflying stock sinks.

“It does not seem real, because it is not real, because this is based on the long term and is dependent on where this whole industry is going,” says Mr. Evans, 44 years old. “Anyone coming into this industry assumes a certain amount of risk because no one really knows how it is all going to turn out.”

Litany of Lucre

It has turned out well so far for the new moguls at GeoCities. According to public filings the company made last summer, the biggest individual winner is co-founder and Chairman David Bohnett, 42, who owns about three million shares outright, now worth $367 million, based on Yahoo’s closing price Thursday. Mr. Bohnett insists he is overlooking that bit of extra money. “I do not see this as a financial event,” he says. “And we did not start this company with money in mind.”

Chief Technical Officer John Rezner, 35, who worked nine years for aerospace company McDonnell Douglas Corp. before co-founding GeoCities, holds 827,000 shares worth $103 million.

The management team that came in with Mr. Evans last year–taking over from Mr. Bohnett to help with the IPO–is also well-situated. Chief Financial Officer Stephen Hansen, 42, who formerly held the same position at Universal Studios Hollywood, has options for about 600,000 shares of stock, which would be worth $74.7 million at current prices. Michael Barrett, 36, advertising vice president and former online executive with Walt Disney Co., has options for 280,000 shares, worth about $34.9 million.

There are, of course, all kinds of gnashing of teeth over whether the Internet entrepreneurs deserve such riches. But obtaining great wealth through luck or artful maneuvering is nothing new in American business history. Take the stock manipulators of the 1890s and the leveraged-buyout artists of the 1980s. It may be some consolation that GeoCities’ founders can claim that they developed something that is used by many people. In its December Web-traffic report, research firm Media Metrix says the “GeoCities.com” Web site ranked third, behind America Online Inc. and Yahoo, with nearly 19 million different visitors.

Mr. Bohnett says the company was born from a “passion for giving people a chance to speak up.” Founded in 1994, GeoCities was one of the first Web-based communities, where users post individualized sites to express themselves.

Dubbed “homesteaders,” these customers create the bulk of the content on GeoCities. Their Web pages are organized into “neighborhoods” of personal interests and hobbies, such as personal finance or motorcycles, and monitored by a network of volunteers.

“My goal was to stake out a broader territory and create a community of interests, just in the same way Yahoo was helping people find their way around the Web,” says Mr. Bohnett, who led the company in a variety of top jobs, including chief financial officer, CEO and president. “Then we were going to monetize that base of users as the business model emerged.”

That model for profitability hasn’t yet arrived, in part because the company spends heavily to increase its market share. Thursday, it announced a net loss for last year of $18.2 million on revenue of $18.4 million.

Mr. Evans, a dark-haired man with a preppy demeanor and razor wit, has plenty of experience building businesses. He worked his way up in Mr. Zuckerman’s organization from sales and advertising jobs, and eventually served as president and publisher of several magazines.

After being approached several times about new-media positions, Mr. Evans says he decided to jump to GeoCities when the importance of the Internet became clear to him. “I think that by the time I really took a look at it, the whole sector had matured and gotten really interesting for those of us in the traditional media companies,” he says.

While Mr. Evans is loath to discuss the valuations of Internet companies, his former boss Mr. Zuckerman doesn’t dodge the opportunity to be philosophical about Web mania.

“It’s like they said in high school: ‘Boys will be boys and girls will be girls,’” Mr. Zuckerman says. “I don’t want to change anything, I just want to get in on it.”

Here is the letter AOL CEO Randy Falco (pictured here) has penned to the entire staff about layoffs of 10 percent of its workforce–or 700 people–and other cost cuts, which the online service is announcing today.

“We’re at a pivotal point in AOL’s transformation, and need to be even more strategically focused and operationally efficient as we weather the economic storm,” wrote Falco, in part, about the move.

As BoomTown reported earlier today, Time Warner (TWX) online unit AOL is making huge staff cuts, due to the weak economy and the ensuing deep falloff in advertising revenue, but also because of recent structural changes made to refocus the once-mighty service.

The layoffs will take place over the next several quarters, with most of the U.S. cuts to be completed by March. AOL has 7,000 employees world-wide, with most located domestically.

Here’s Falco’s letter:

Dear AOL colleagues,

I’m writing to tell you about some important decisions we’ve made about AOL’s business and why we’ve made them.

The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars.

As a result, we will be reviewing our entire organization to further align resources and expenses against the real revenue opportunities in this difficult market. Part of this will involve consolidating groups to gain efficiencies that will unfortunately lead to head-count reductions. We anticipate this will result in a net reduction of our workforce of up to 10% over the next several quarters–and we will attempt to finalize all domestic actions by the end of March. Reducing our workforce is never easy, particularly in the current climate, but our goal in doing this is to provide our core businesses the resources they need to thrive. Please know that, as always, we’ll be doing everything we can to help and support those affected, including offering severance packages and other services.

To further keep employment costs down, we will also forgo merit pay increases in 2009. This is a painful decision, but one that many companies have prudently taken to help minimize the number of layoffs they have to make.

To provide some perspective on these decisions, right now we’re 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. We’ve worked shoulder-to-shoulder to make considerable progress during this time.

We acquired best-in-class companies across the digital advertising space (AdTech, Third Screen Media, Lightningcast, buy.at, TACODA and Quigo, respectively) and integrated them with Advertising.com to build Platform-A, the largest, smartest display advertising platform in the world.

We grew our MediaGlow audience via an efficient content development model that in 2008 enabled us to launch more than 20 new sites that are generating significant page view (up 64% year over year in December), engagement (up 39% year over year) and unduplicated user (70+ million) numbers. This momentum will continue in 2009 with our goal of creating an additional 30+ editorially curated sites focused on consumer passion points.

We combined Bebo with our longtime community assets AIM and ICQ as well as newer acquisitions Goowy, Yedda and SocialThing, to build People Networks, gaining AOL a foothold in the critical social media space, with more announcements to come on the next phase of development in both the social media space and in the integration of social and publishing capabilities.

This progress continues to put AOL in a strong position to capitalize on our new business model when the recession ends.

In addition to focusing our investments, a successful turnaround plan also requires us to realign our cost structure against this three-pronged business model–making difficult decisions to cut costs in areas that aren’t critical to our growth. Splitting out the Access business improved the transparency of what’s working and what’s not, and allowed us to make better decisions about exiting businesses that weren’t performing while investing in growth areas. A successful turnaround plan also mandates we control costs, operate with healthy margins and position the company for sustainable growth. As you know, we’ve moved repeatedly to bring discretionary expenses in line to spare across-the-board job cuts.

But we’ve also had to make many hard decisions along the way. And this moment is no exception. We’re at a pivotal point in AOL’s transformation, and need to be even more strategically focused and operationally efficient as we weather the economic storm.

In addition to the head-count reductions and the 2009 merit pay decision, we are also making changes throughout the organization to improve efficiency and better align it to our three core businesses. This includes a review of our international operations and our global shared-services functions. In addition, we will continue throughout the year to carefully and thoroughly review all our products and services to make sure every one fully supports our strategy and has the potential for growth.

Finally, we are going to realize significant savings by continuing to consolidate our facilities–for example, moving from two buildings to one in Mountain View, from two floors to one in Los Angeles, and leasing unused space on our Dulles campus.

With these and other changes, we will take significant annual run-rate costs out of our business while, importantly, retaining the flexibility to invest in our growth strategy.

I know all this will raise questions, but I wanted to share as much as I could with you now. Senior management will provide more details as appropriate to their teams in the weeks ahead.

As difficult as things look right now, the economy eventually will turn around. Some companies will use this time prudently and make difficult decisions to come out of it in better shape–growing toward areas of opportunity, scaling back in others and maintaining a line on costs all around. Our only choice is to be one of these companies. With your continued hard work and dedication, we will position ourselves to emerge a stronger company ready to lead in a vibrant online market.

Randy

Time Warner online unit AOL is cutting 700 employees due to the weak economy and the ensuing falloff in advertising revenue, but also because of recent structural changes made to refocus the once-mighty service.

AOL CEO Randy Falco sent a memo this afternoon to AOL staff about the layoffs and other cost cuts being made, confirming the moves.

The 10 percent reduction in workforce will take place over the next several quarters, with most of the U.S. layoffs to be completed by March. AOL has 7,000 employees world-wide, mostly located domestically.

AOL is also eliminating merit raises, just as Yahoo (YHOO) and other digital companies have done recently, and consolidating facilities.

While Time Warner (TWX) has been trying to sell AOL to Yahoo, the online unit has also been shifting its resources, as part of a long-term turnaround plan. It has focused the company on three parts: its Platform-A ad unit; its communications and social-networking arm, People Networks; and its recently launched MediaGlow content studio.

It has also been in the midst of splitting out its longtime access business, which has provided the bulk of AOL’s revenues and profits, which sources said has given its top execs insight into what its future business model should be.

Besides the layoffs and cost cuts, sources said AOL was also looking at paring its international business, which has never been particularly successful.

As part of its ongoing moves to make New York its main HQ, AOL will also be consolidating facilities in Silicon Valley, Los Angeles and at its original homestead in Dulles, Va., although not closing it completely.

Much as throughout the online advertising industry, AOL has seen drastic declines in growth. In a recent financial report, AOL said its ad business dropped almost 20 percent year over year.

And AOL’s worth has also declined, with Google (GOOG) recently writing down its 2005 investment of $1 billion in the online service, which valued it then at $20 billion. It is now valued at $5.5 billion.

One of the more interesting quarterly earnings calls to watch carefully is going to be Time Warner’s in two weeks.

Why? Well, in the digital space, it’s because of its long-suffering online unit AOL and what results it will show.

More importantly, though, is what AOL’s performance will mean for the attempts Time Warner CEO Jeff Bewkes has tirelessly been making to trade it away.

The media giant will announce its third-quarter results Nov. 5 at 10:30 a.m., Eastern time.

Last quarter’s results were not too promising, to say the least, and it was due in large part because AOL dragged Time Warner (TWX) down badly.

There were declines in both revenue and operating income at AOL, which were luckily offset by strength in Time Warner’s cable television and movie studio divisions.

AOL saw its revenue drop to $1.1 billion, a 16 percent dip, with operating income off 36 percent, to $230 million. There were more subscribers lost from its slowly dying dial-up Internet service–incredibly AOL has lost 14 million in the last three years.

And that was planned, after AOL’s home page and email went free. What was not so figured out was how badly its business would be struggling to make a better margins from advertising, even as its access business dwindled.

Time Warner began to separate the two sides of AOL, an effort still in process, in order to sell them both off.

John Malone of Liberty Media (LINTA) said this summer that he would make a swap for the cash-generating access business, and there is also Earthlink (ELNK) and United Online (UNTD) in that mix.

As to the rest of the AOL business–still an advertising and content behemoth, despite its woeful descent over the years in Time Warner’s care–Bewkes has been trying to pawn it off for years now in a variety of deal-chatting with companies like News Corp. (NWS) and Microsoft (MSFT). (News Corp. is the owner of Dow Jones and this Web site.)

And, principally these days, Yahoo, with which Time Warner has been locked in endless discussions about a possible merger for months.

But, while every week the AOL side leaks the breathless news that the union is just about to be struck, that has yet to come to pass.

Still, even this past week, various execs from both companies have been meeting, discussing what the new Yahoo-AOL combo might look like.

The deal, on some level, makes sense, putting together the top graphical ad businesses online and uniting powerful content assets, as well as dominant online communications offerings.

The pair also share a strong relationship with search powerhouse Google (GOOG)–it owns five percent of AOL and does its search, and is trying to launch a controversial search ad outsourcing deal with Yahoo.

But a possible merger of AOL and Yahoo also has a strong stink of desperation about it–of two struggling companies trying to stand together so they won’t fall apart.

Of the pair, despite its weak results last week and endless turmoil over the last year, Yahoo (YHOO) is decidedly the stronger business, with obvious prospects of revival.

But its moribund stock, now hovering in the $12 a share range, has put a damper on talks, given how much Yahoo would have to give up to get AOL.

For its part, Time Warner is foolishly holding onto an $8 to $10 billion price tag from days long gone by. And if results at AOL continue on the trajectory they are on–how could they not, given the weak economic situation?–Bewkes might want to get a little more flexible.

Because things are only going to get worse. So, if a Yahoo-AOL deal is to be struck, sooner or later, for Time Warner, it had better be sooner.

Today, BoomTown will be spending the whole day–complete with lunch!–at Yahoo’s Sunnyvale, Calif., HQ to visit various and sundry execs in charge of a wide range of products.

Why? Well, as interested as I am in all of Yahoo’s always messy corporate and stock machinations, it’s just as important to get a handle on exactly what actual products and services the company is working on to get out of its quandary.

That’s important because Yahoo’s prospects have gotten so bogged down of late that even the possibility of an overpriced deal to buy Time Warner (TWX) online unit AOL, including its access business, whacked its stock yesterday.

Yahoo (YHOO) shares dropped to $12.65 yesterday, down 84 cent or 6.2 percent, partly due to the weaker market, but also because of the rumor that Yahoo was possibly going to pay too much for AOL.

That too much would be $8 to $10 billion.

The report by Silicon Alley Insider’s Henry Blodget, which included an odd Yahoo-labeled 18-wheeler semi-truck sighted near AOL, turned out to be not so solid and was later refuted by Blodget himself.

Nonetheless, it was a point well taken from the bad reaction that few think a merger is a good idea at anything other than low, low prices.

Why? Well, for one, the uncertain immediate future for the graphical ad business–big earners at AOL and Yahoo–going forward.

Other key issues: AOL’s growing weakness. Its revenue (half of which comes from the ISP business, by the way) and also its operating income are down.

Even the less stellar performance of Yahoo of late looks good in comparison.

Of course, the pair are still talking in that lugubrious way, as has been reported previously here.

And, if forced to bet, I would suspect there will be a deal done eventually.

But, as they say, god–or the devil, as the case may be–is in the details.

Until then, as I hope to see today at Yahoo, both it and AOL have got to get busy making their standalone businesses shine a lot better than they do now.