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Patch and AOL

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The last annual report of AOL did not reflect the losses of Patch.

The New York Times of 18th August reports on the latest regarding AOL’s long, slow slide into oblivion. According to the newspaper, AOL hit a hard bump on its road to becoming a digital media company. I did take what I think was more interested for me:

“Last week it reported another loss and told Wall Street analysts it was not going to get much better: operating income for the year could be down as much as 20 percent because of weaker ad sales. The performance raised new doubts about whether AOL’s big bet on editorial content, would reverse a decade-long decline…. The company’s shares lost a third of their value over two days.

Mr. Armstrong, 40, is trying to remake AOL into a media powerhouse to offset the lost revenue from a steadily dwindling Internet access business. It’s a big site. More than 105 million unique visitors dropped in during July to use e-mail, catch up on celebrity gossip and check the weather.

Fixing the company will take until 2013, he acknowledged. Meanwhile, he said he was spending up to $250 million of the $459 million the company had on hand to buy back its devalued stock. The gesture helped the shares regain some of their losses for the week. He has been spending heavily in the core products too. Since buying The Huffington Post in March for $315 million, Mr. Armstrong has added 17 new sections, like divorce, parenting and Latino issues. AOL is introducing international editions for Canada and Britain.

AOL also added 300 journalists to The Huffington Post as it shifted from its roots in aggregating coverage from others to writing more original news.

In terms of low points, The Huffington Post briefly suspended a writer last month who “over-aggregated” an article from Advertising Age by summarizing its contents too thoroughly. It underscored a frequent complaint that The Huffington Post steals traffic from publishers by rewriting articles to the point that it is unnecessary for readers to click on a link to the original source.

AOL’s decline in value is so great that analysts point out that the company may be worth more now broken into pieces and sold. The Internet access business, in particular, would be good to unload, they say.

Other ideas include closing Patch, AOL’s local news initiative that has reporters in 850 towns. Eliminating the money-losing service would free $160 million and lift AOL into profitability.

Mr. Armstrong responded to such suggestions by saying that the long-term benefits of his strategy outweighed any short-term gains promoted by Wall Street analysts. High-quality content, he said, is the Internet’s future growth engine.

In contrast to the overall flat growth, traffic in The Huffington Post sites has grown around 12 percent since it was acquired, to nearly 35 million. But some of that gain is from shifting traffic from established AOL sites that were closed.”

An article in Forbes (from a former AOL employee) were very hard on AOL:

…..”Huffington has been on an extravagant hiring binge for months, sweeping up journalists from the New York Times, USA Today, FORBES and elsewhere with some extraordinary pay packages, at least by the standards of journalism. The spree actually began last fall when she hired two editors from the Times, Tim O’Brien and Peter Goodman, both at salaries said to be in excess of $300,000 per year. It has ramped up hiring considerably since the merger closed, with Huffington bringing on more than 75 new journalists. To make room for HuffPo transplants, AOL laid off most of its writers and editors as part of a 900-person workforce reduction after the merger was finalized in early March. ….. Many new HuffPo hires simply replaced equally pedigreed reporters and editors AOL brought in two years ago in its last big original-content push. “The irony of the situation is what Arianna is trumpeting now is what AOL was trumpeting just before Tim arrived,” says one former content executive who left voluntarily last year.

AOL…”has had trouble making inroads into the more lucrative but elusive world of display advertising that AOL needs to survive.”

Patch

These are some excerps published by Businessinsider:

AOL is betting $120 million this year on a network of local news Websites called Patch.

Patch has about 800 editors and more than 100 sales people.

Patch sites attract just 4 million unique visitors each month, according to comscore at the beginning of 2011.

That is a pathetically low number for a media company with more than 800 editors.

By contrast, Huffington Post, with about 100 editorial staffers and 200+ employees overall, has 25 million unique visitors each month. With much smaller costs and much bigger traffic, Huffington Post only just turned profitable in late 2010.

 

But let’s suppose that Patch is a wonderful product, and everyone in every community ends up reading their local patch – and that Patch’s nationwide reach doubles to 100%.

Then Patch will have 20+ million uniques.

That sounds like a big number until you remember that Patch has ~800 editors, a couple hundred sales people, and whole bunch of support staff in New York.  Remember, Huffington Post just turned profitable this year, and it has about 20 million more uniques with about 900 fewer staffers than Patch.

Huffpo will generate about $50 million of revenue this year from its 25+ million uniques. Unless Patch generates several times the revenue-per-unique that Huffpo gets, the ad-driven numbers just don’t work.  Even if Patch got to 25 million uniques and generated $100 million of revenue (2X Huffpo’s per unique), it would still be losing money.

The only way Patch wins is if it can prove that local, geographically-pinpointed traffic is more valuable than national, broad-based traffic – by several multiples.

And maybe it’s possible to do that with the current ad model, but it’s going to require huge (expensive) local sales efforts and pricing that is at least 3X as high as national ad pricing.

One other route to a win might be through building the monetization engine that everyone else is now jumping into with both feet: Daily Deals.

The good news for Patch is that there is a startup out there right now doing just that.   Groupon, which sells nothing but local advertising, turned down a $6 billion acquisition offer from Google last fall, and is on track to IPO at a $15 billion valuation in 2011 or 2012.

Of course, Groupon has 51 million email subscribers, who already buy deals worth $2+ billion a year.

Right now, Patch just sells banner ads, video profiles, upgraded listings, out of town listings, and coupons.

If Patch can grow to 20 million uniques and if it can convince a big proportion of its readers to subscribe to a daily email with a Groupon-like coupon attached – two very big ifs – there is some hope for Patch – and, in turn, AOL.

So far, it’s looking good. A Patch rep tells us that newsletter subscribers grew 33% in February, 174% in the last three months, and 603% in the last 6 months. (Though it’s easy to grow fast off a small base.) In the three towns where Patch has resided longest, 35% of the population subscribes to their local newsletter.

Of course, building an email newsletter business is quite different than building a coupon business like Groupon’s. So Patch will have to build that, too.

But maybe, someday, Patch can get to 10 million or so email subscribers, and build a huge local deal salesforce (which is different than a display sales force).  And then go compete with Groupon

According to a comment in a website, “he only good media buy with Patch is in the email notification, but it doesn’t look like they offer that.

Not enough people actually visit the website to justify the cost of an ad, but the email reaches everyone everyday – and that could be a good buy as the list grows.
The “5 Things You Should Know” feature that appears at the top of each day’s email is a cute idea, but a bad one. They should have news headlines and obit listings at the top. That’s what people want.
And they should put more of their message in text, not html. Html messaging means you can’t read it without changing the default settings in your email.
As for the concept itself, one editor should be able to handle one town’s major news. Newspapers have been doing this for years.
Patch should forget about the soft stuff (other than listings) and just focus on the real news.”

Sales in Patch
People in the sales teams that are successful have to sell the product to an ignorant lot of small business owners that can’t differentiate between branding and performance-driving results.

Sales have dropped dramatically so there’s a tremendous morale problem within Patch. The editorial staff has been worked to death and they’ve already changed it over once, effectively. The same thing is going on the with sales force.

When it gets down to paying the editors, paying the sales staff, paying the management and the requisite expenses that go along with that, the numbers just do not compute. The advertising cannot support the local Patch model the way it stands. From a dollar standpoint, it simply will not add up.

They had a price increase a couple of months ago, and it’s been a disaster because it was already overpriced to begin with from a competitive standpoint. Rates went up 10% to 20% depending on the Patch.

Here’s the real issue with Patch: They’re selling a branding advertising campaign to small businesses that should never put their first dollar in that bucket. It should be on Google AdWords, where it’s measurable and it’s cost effective, whether it’s a Groupon or AdWords type play.

The problem with Patch is that if you really look at the model, banner ads have been around for 15-20 years online, and it’s essentially an old product with a new twist on it from a local new standpoint.

If you look at LivingSocial or Groupon, that makes perfect sense in this day and age because it’s measurable and it’s identifiable in this day and age, it’s transparent. Patch is on the other end of that continuum. It’s brand advertising to companies that should not even consider that for dollar one, much less their last dollar.

According to the sales person interviewed, the root problem is “leadership, or lack thereof. They have the wrong people in leadership capacities, partly because they were so hasty in building the model and trying to be first to market that they forgot that quality people are essential to getting anything off the ground.”

Editors:

Patch, has about 830 editors.There arethe “5 Things” posts Patch makes its editors write every week, and which sometimes they didn´t like. Other things that, according to businessinsider, doesn´t lik include:

 

 

  • The Patch model isn’t sustainable. One full-time employee per site, means one person wears all hats. Content is supplemented by freelancers, however, there is still just one person responsible for running the site, 24/7. No one edits or proofreads. Editors who are good news journalists must also cover Woman’s Club events. While editors who specialize in fluff have to try to wrap their head around ordinances and lawsuits.
  • Editors are responsible for providing copy seven days a week.In order to take a day off, like Sunday, content must be set up in advance. In order to take a vacation, editors need to find and train their own sub, and pay for them out of the limited freelance budget. Editors are encouraged to prepare content in advance and bring their laptop on vacation instead of hiring a sub.

 

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