There’ve been plenty of reactions to this morning’s news that AOL is purchasing The Huffington Post for the princely sum of $315 million ($300 million in cash, the remainder in stock). Shock. Surprise. Horror, even.
Take a look at the company’s activities for the last couple years, though, and you’ll notice that this sort of purchase isn’t anything out of the ordinary (although it is a particularly large one). Ever since subscription revenue started dropping like a rock in the mid-2000s, AOL has explicitly pursued a business strategy that isn’t too different from the recently-IPO’d Demand Media: generate tons of ad-optimized content, sell tons of ads.
It’s a risky strategy for the company, but with AOL posting a net loss of $782 million for 2010, the company basically has no choice but to find a new business model. The dial-up subscriptions that made AOL a juggernaut throughout the 90s are gone for good, and its efforts to adapt to a broadband world did little to slow the loss of subscribers.
The company’s previous content acquisitions include TechCrunch in 2010 and the Weblogs, Inc. network (which includes Engadget, Joystiq, and Autoblog) in 2005, not to mention parallel acquisitions like advertising companies. It’s hard to settle on a figure since so many of AOL’s acquisitions are for undisclosed amounts, but even without The Huffington Post acquisition the company has sunk a sizable chunk of change into the content biz.
In other words, the days of mass mailing CDs to unsuspecting consumers are long gone. Say hello to AOL, content megastore.
There’s two problems with AOL’s approach, however: it’s never been a content company, or at least not a very successful one, and there are already a bunch of more experienced and established players in this particular market. The previously-mentioned Demand Media leads the pack, followed by Yahoo! (pursuing a rebranding effort to rival AOL’s own, as it moves from search to ad-supported content), and a handful of lesser players. AOL has distinguished itself mostly by the huge amount of cash it has on hand ($750 million as of last October, according to the company) and its willingness to shell out big bucks for high-profile sites.
But when even supposed up-and-comers like Demand Media have failed to turn a profit, despite their earlier claims to the contrary, it’s hard to see AOL’s rebranding as anything but a shot in the dark from a company that knows it’s been on shaky ground for a while and needs to turn its fortunes around. There’s every indication that content will continue to be an important business in the years to come, but it could hardly be called a growth industry right now.
Another key factor in evaluating AOL’s acquisition is taking a look at The Huffington Post itself. How much revenue can AOL expect the site to bring in? Unfortunately, as with most privately held companies, it’s difficult to say. Founder Arianna Huffington claimed that the company broke even in 2010 with $30 million in revenue, and speculated that it could triple that figure by 2012. But without a look at the company’s finances, there’s no way of knowing how accurate those figures are. The site is clearly extremely popular, but financially it’s essentially an unknown quantity. As EContent has covered previously, the site has depended on an influx of venture funding, although it seems to have enough in its coffer to devote to things like the Huffington Post Investigative Fund — with a little help from its friends.
Of course, that doesn’t mean AOL won’t be successful with its strategy of purchasing established sites. Even if it is an expensive way to attract more visitors, it’s also one that’s guaranteed to immediately bring more eyeballs to AOL’s content network. There’s also the fact that founder Arianna Huffington is reportedly being placed in charge of AOL’s coterie of content sites (including the aforementioned TechCrunch and Engadget), which suggests that this acquisition might also play a part in some sort of effort to present a unified front for AOL’s content business.