AOL will lay off about 2,000 employees, or approximately 20 per cent of its staff, as it continues its transformation into an online, ad-supported business and moves further away from its traditional revenue model based on dial-up internet access fees.

The layoffs will begin on Tuesday and will continue over the coming months, CEO Randy Falco said in a memo sent to employees on Monday.

The staff reductions will allow AOL to increase its investments in "high-growth areas of the company," Falco wrote.

Falco's memo to staff reads: "So where is this taking AOL? Put simply, my vision for AOL is to build the largest and most sophisticated global advertising network while we grow the size and engagement of our worldwide audience."

"We're now in a position to win as an advertising-supported business. We have a bright future as a company if we can execute on this vision," Falco wrote.

Whether AOL can truly meet the expectations that its parent company Time Warner and its investors have for it as an online ad-support business is still uncertain.

In August, when Time Warner issued its second-quarter financial report, some observers were surprised that AOL's online ad revenue grew only 16 per cent during the quarter, well below the about 26 per cent growth of US online ad spending that quarter.

This prompted speculation that Time Warner might be inclined to spin off AOL or sell it, but in September, Time Warner Chairman and CEO Richard Parsons dismissed the rumours.

Parsons said Time Warner wants AOL to complete successfully its transition to an ad-supported business, taking full advantage of the opportunity in the vibrant online ad market, and isn't currently considering selling it or spinning it off.

"We're doing better than I had hoped with AOL but we still have a long way to go. We have to make sure we stay tightly focused there," Parsons said then at a Goldman Sachs conference, responding to questions from a financial analyst.

While acknowledging that it's likely that Time Warner will at some point sell off AOL's ISP (internet service provider) business, he said that wouldn't happen for at least a year or 18 months.

One reason is that the internet access business, although shrinking, still accounts for a majority of AOL's profits and a substantial portion of the traffic on the AOL network of websites still comes from access subscribers, he said.

Also in September, AOL announced it had integrated various ad networks into a single platform, hoping the move jumpstarts its online ad business

The integrated ad platform, called Platform A, meshes AOL units like Advertising.com, Tacoda, Third Screen Media, Lightningcast and AdTech.

AOL also announced at the time its plans to move its headquarters from Dulles, Virginia, to New York in order to be physically at the centre of the US advertising industry.

"AOL now has one of the largest and most sophisticated ad networks in the world, and we're well positioned to compete where the ad market is heading," Falco wrote in Monday's memo.

The employees losing their jobs will get what Falco described as "generous severance packages" along with help in finding new jobs.