Below is the full text of the email AOL EVP Kevin Conroy sent out to staff on July 14, outlining the reorganization of his product groups and announcing the “sunsetting” of XDrive, AOL Pictures, MyMobile and Bluestring.

This follows the news of budget cuts at AOL’s blogging properties earlier today.

At the start of this year I committed to providing frequent updates on the state of our business and our plans going forward. Additionally I have said that we will continue to evaluate our product portfolio and discontinue projects when necessary in order to focus our resources in the right areas. In that spirit, I want to give you an update on the essentials project, an exercise we undertook to help our organization focus on the things that will most effectively contribute to the financial health of our company.

There was a time at AOL when the strengths of our aggregate portfolio of products more than compensated for the weakness of an underperforming product. The realities of the industry and market shifts in online advertising no longer make that possible. Simply put, every product makes a direct impact on our bottom line. With two quarters behind us, it is fair to say that results across the AOL products team have been mixed. And while I expect 2008 to finish stronger than it started, the current situation is that some of our products are doing very well while some continue to struggle. Being responsible to our company and its financial goals means taking a very hard and honest look at each of our products and making the tough business decisions necessary to ensure the long term viability of AOL.

The changes described below are in no way a reflection of the hard work and creativity of the people who built and maintain them.

- Personal Media: Bluestring, Xdrive and AOL Pictures will be sunset. These consumer storage products haven’t gained sufficient traction in the marketplace or the monetization levels necessary to offset the high cost of their operation. We have found that building media management applications within the context of a social experience is a more rapid and effective way to grow the business. For example, today the Bebo audience is uploading over three million photos per day. To effectively grow the XDrive online storage business we would need to focus on subscription revenues vs. monetizing through advertising revenue, and this business model is not in strategic alignment with our company’s goals. We are exploring plans to migrate our users assets to ensure the best possible transition experience.

- MyAOL will complete its HP deployments by the end of October and will transform the MyAOL platform from proprietary to industry open standards. The team will provide ongoing platform maintenance support for our 70 plus HP partner sites.

- Mobile: We have decided to halt further investment in AIMWorld and will sunset MyMobile next year in order to focus on our core revenue producing products (ie, mail, messaging, portal and mapping). Along with these core products we will focus on developing for key devices like the iPhone and the Blackberry. We will also leverage open services through OpenMobile to engage third party mobile developers in order to create new applications and experiences, which will expand distribution without additional internal development costs.

- Video Portal: The AOL Video Portal has seen significant success in growing organic search traffic to about 15 million SEO referrals per month. That said, there is an opportunity to align resources throughout the company and grow advertising revenue by merging the video portal with AOL Programming Video Experiences to deliver a higher value product inside of the AOL Programming channels. The work to merge the two products is currently ongoing and will be completed in early Q4.

We are also aggressively seeking revenue growth opportunities and have identified the following areas as opportunities:

- Toolbar: Accelerate the distribution and monetization of toolbars to drive revenue derived from search and recirculation.

- Desktop: Develop and launch desktop software promotion push to drive increased ROI through the acquisition of new free software users.

- Mail: Increase effective monetization of mail while pursuing distribution opportunities to grow audience and engagement. Drive growth though new ad inventory (Quigo, etc.), ad packaging and sales strategy development, affinity and cobranding partnerships and open services.

- Truveo: Monetize the over 50 million UVs Truveo receives monthly through our O&O site and APIs through a phased approach including banner advertising on the site and monetization of the APIs.

The plans we are putting into place strengthen our position in the industry and improve the finacial health of our business. The evaluation of our product is based on ongoing monthly reviews of each product’s progress compared to our 2008 goals and the market outlook. It is fact based, not arbitrary. It goes without saying that we are all working in a dynamic and challenging industry, but I firmly believe that we can succeed by focusing on reveue opportunities and managing our costs. I hope that you will continue to stay focused and deliver your best work as we strive to continue the transformation of our company.