WebMD is laying off 14% of its employees.  Streamlining is the official reason, which is business speak for “Help, we’re sinking!”  The reduction to the work force is estimated to be saving WebMD $45 million in annual operating expenses, but this is far from good news to the 250 employees who are losing their jobs.  The cause of WebMD’s woes might surprise you.

A number of factors are contributing to the loss in ad revenues experienced by WebMD over the past year.  Chief among them would be the inherited problems of pharmaceutical companies.  Stricter regulations on pharmaceutical ads, coupled with the loss of lucrative patents, caused a drastic reduction in advertising money streaming into WebMD this year.

Another reason that WebMD had to decrease its workforce is due to increased competition from social networks and other ad networks.  Facebook has been working hard to increase the effectiveness of advertising, and it’s hard to sell advertising on just one site when the same money can buy into a larger pool of consumers in an ad network.

Basically WebMD spent the year fighting over a smaller piece of an ever-shrinking pie.  The backbone of websites like WebMD is advertising.  Just like other social networks it’s difficult to turn site usage into money when the services you are offering are free of charge.  Hosting all that data is expensive as are the employees necessary to keep a site of this nature active and free of errors.

This cost cutting measure may keep WebMD a float for now, but don’t be surprised if you see them experimenting with other ways to generate revenue during 2013.