AOL takes alternative-Yahoo approach to M&A

February 7, 2011
AOL

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran
Reversing fading Internet brands is difficult — especially if it isn’t clear what a company stands for. Take AOL’s $315 million purchase of The Huffington Post. With this, AOL still looks like a patchwork of seemingly unrelated media sites compared to Yahoo’s centralized uni-brand approach. Yet both may not succeed in equal fashion.

AOL’s access business still accounts for more than 40 percent of sales and a bigger chunk of profits. Yet these sales fell 26 percent in 2010. So the company is acquiring content companies in a hurry, hoping ad revenue will fill the breach.

Now it’s adding the well-known left-leaning news and entertainment site to AOL’s mix of everything from hyper-local news to technology blogs. And founder Arianna Huffington will oversee all of AOL’s editorial operations. HuffPo is growing fast and just profitable — it had $31 million in revenue last year and should turn more than $50 million this year. Moreover, AOL has far more Internet traffic. If it can send some of this to HuffPo — and vice versa — the combined caboodle should be able to reap more advertising dollars. AOL also said it can cut $20 million of HuffPo’s costs.

Yet here’s the nut of the problem for AOL — and for Yahoo as well. The audiences are different for national news, local news, trade publications and other content. Putting most content under one label, as Yahoo does, results in an amorphous brand on a single advertising platform. Keeping multiple brands may better segment the audience. And AOL’s promise to increasingly focus on women may eventually unify these brands somewhat, but there are few connections so far.

Local, trade, and national advertising markets are structured differently. Supercharging HuffPo’s growth by using AOL’s large sales force, not to mention its hyperlocally focused Patch sales folks, is easier done on a spreadsheet than in practice. That’s particularly true given AOL hasn’t done a great job selling its own sites so far — display ad sales fell 14 percent in the first quarter compared to the same period last year.

That leaves AOL with two potential problems. First, those interested in news of start-ups may not care about, say, celebrity news or divorce tips, so the ability to generate traffic across specialized sites isn’t guaranteed. Second, at close to six times estimated 2011 revenue, AOL is paying a pretty penny. Come to think of it, the least confusing aspect of AOL’s strategy is its willingness to pay up for Internet traffic.

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/