The Wall Street Journal
AOL Inc. went on a shopping binge Tuesday, announcing three acquisitions, as it tries to redefine itself as a hub for Internet videos and articles on various trendy topics.
Back when it was called America Online, AOL was the first introduction to the Internet for many Americans. In recent years, though, its influence has waned. AOL's latest rejuvenation efforts—which include Tuesday's deals to buy the TechCrunch blog, online video company 5min Media and Web-based software company Thing Labs Inc.— mark an important case study of the difficulty shedding old business models in order to move ahead with a fresh face.
While the company continues to invest in its new strategy, its business hasn't moved much beyond its old one: More than 40% of its revenue still comes from selling dial-up Internet service and related subscription products, the legacy business it has been trying to shed for years.
"I don't see anything in the near term that will compensate for their subscription business," says Doug Anmuth, an Internet analyst with Barclays Capital. "It is a pretty massive transition that they are trying to pull off."
In an interview Tuesday, AOL Chief Executive Tim Armstrong said that AOL's efforts to remake itself will take time and pointed to its latest deals as signs of momentum. In TechCrunch, the company is acquiring one of the most prominent tech blogs, with more than 3.8 million unique monthly U.S. visitors, according to comScore Inc., a firm that measures Web traffic. TechCrunch is bringing in revenue at a rate of about $10 million a year.
The company also purchased 5min, a site known for instructional videos on topics like fitness and cooking.
The acquisitions "are in the strike zone," he said, adding that AOL had a multi-year agreement to retain TechCrunch's high-profile blogger Michael Arrington, who founded the site in 2005. "The one thing that doesn't change is people's consumption of content."
All three are relatively small buys. AOL paid roughly $65 million for 5min and around $30 million for TechCrunch, according to people familiar with the matter. The third deal was said to be even smaller. Thing Labs makes Brizzly, an online application that allows users to post and read updates to Twitter and Facebook from one website.
But, for AOL, a lot is at stake.
In the second quarter of the year, AOL's revenue plunged 26%, and subscription and advertising revenue each fell 27%. Unique monthly U.S. visitors to AOL sites declined 3% from February to August, according to comScore.
AOL's stock is about flat since its first day of trading following its separation from Time Warner Inc. last December.
Mr. Armstrong and other AOL executives have been trying to offset the gloom by trumpeting the new strategy, speaking out at industry conferences including Advertising Week in New York this week, which AOL has been blanketing with posters playing up its new content plans.
Advertisers like the idea of making AOL a go-to place for buzzworthy news and entertainment. But they aren't convinced it will work.
"We see good intentions, but it doesn't seem to be playing out yet," says Steve Kerho, senior vice president media and analytics for Organic, a digital-marketing firm owned by advertising agency Omnicom Group Inc. "It is a little worrisome."
TechCrunch's Mr. Arrington is an influential yet polarizing figure in Silicon Valley. He commands respect from entrepreneurs keen for him to cover their businesses and breaks a fair amount of news about the industry. But he doesn't shy from speaking his mind on controversial issues. Recently, he set the blogosphere abuzz with a post accusing tech investors of colluding on deals.
Messrs. Arrington and Armstrong announced their pact on stage at a conference the website was hosting Tuesday. In brief remarks, Mr. Armstrong said that the company would seek to build out a major technology content business, with Mr. Arrington and the TechCrunch team as one pillar.
AOL's transition beyond its legacy dial-up business began in 2006 when the company, then owned by Time Warner, decided to stop charging a subscription fee for users who already had high-speed Internet service or dial-up. That meant that AOL members with their own Internet connections, could browse its services for free.
It was a bold gamble that a brand that built itself on charging consumers to connect them to the Internet would find its future growth from online advertising instead.
Mr. Armstrong, a former senior advertising executive at Google Inc., ran with the vision. After joining the company in April 2009, he kicked off a lengthy review, code-named "Project Atlas" to address whether to sell the access business, which was hemorrhaging subscribers.
He decided not to, noticing that AOL's paying subscribers were big users of AOL sites and responded to more ads. Instead, he focused on increasing advertising revenue by acquiring and producing more content to show ads against.
As the market for basic online services, like email, has grown more competitive in recent years, Web companies are trying to draw viewers and advertisers by supplying them with articles and videos about topics they care about, ranging from cooking to cars. To do so, they've been hunting for content companies focused on select audiences, like moms, as well as those that can generate lots of content inexpensively by relying on freelancers and technology that tracks what's popular.
AOL has been particularly zealous. It acquired two companies that specialize in local news, Going Inc. and Patch Media Corp. Patch operates close to 200 local community sites devoted to towns like Agoura Hills, Calif., and Montclair, N.J. It also launched new technology to mass-produce articles based on popular topics and struck deals with celebrities including the Jonas Brothers. AOL also acquired online video company Studio Now Inc. in January for about $36.5 million.
Still, in 2009, around 43% of the company's revenue came from its dial-up business and related paid services, like software that provides extra privacy protection. For 2010, several analysts are estimating that figure will stick to around 42%.
In the second quarter, the number of people in the U.S. who paid $9.99 a month or more for AOL's Internet service fell 25% from the previous year to 4.36 million.
Mr. Armstrong estimates that about 10 million to 12 million visitors to AOL sites are tied to its dial-up subscription business. Overall, the AOL site had roughly 107 million unique monthly U.S. visitors in August, according to comScore.
Mr. Armstrong said in an interview that the company isn't giving up on the subscription business and has plans to expand it by offering more paid services, along the lines of the security or fitness-tracking software it already offers.
"Paid services is an interesting part of our business and our future," he said.
Back when it was called America Online, AOL was the first introduction to the Internet for many Americans. In recent years, though, its influence has waned. AOL's latest rejuvenation efforts—which include Tuesday's deals to buy the TechCrunch blog, online video company 5min Media and Web-based software company Thing Labs Inc.— mark an important case study of the difficulty shedding old business models in order to move ahead with a fresh face.
While the company continues to invest in its new strategy, its business hasn't moved much beyond its old one: More than 40% of its revenue still comes from selling dial-up Internet service and related subscription products, the legacy business it has been trying to shed for years.
"I don't see anything in the near term that will compensate for their subscription business," says Doug Anmuth, an Internet analyst with Barclays Capital. "It is a pretty massive transition that they are trying to pull off."
In an interview Tuesday, AOL Chief Executive Tim Armstrong said that AOL's efforts to remake itself will take time and pointed to its latest deals as signs of momentum. In TechCrunch, the company is acquiring one of the most prominent tech blogs, with more than 3.8 million unique monthly U.S. visitors, according to comScore Inc., a firm that measures Web traffic. TechCrunch is bringing in revenue at a rate of about $10 million a year.
The company also purchased 5min, a site known for instructional videos on topics like fitness and cooking.
The acquisitions "are in the strike zone," he said, adding that AOL had a multi-year agreement to retain TechCrunch's high-profile blogger Michael Arrington, who founded the site in 2005. "The one thing that doesn't change is people's consumption of content."
All three are relatively small buys. AOL paid roughly $65 million for 5min and around $30 million for TechCrunch, according to people familiar with the matter. The third deal was said to be even smaller. Thing Labs makes Brizzly, an online application that allows users to post and read updates to Twitter and Facebook from one website.
But, for AOL, a lot is at stake.
In the second quarter of the year, AOL's revenue plunged 26%, and subscription and advertising revenue each fell 27%. Unique monthly U.S. visitors to AOL sites declined 3% from February to August, according to comScore.
AOL's stock is about flat since its first day of trading following its separation from Time Warner Inc. last December.
Mr. Armstrong and other AOL executives have been trying to offset the gloom by trumpeting the new strategy, speaking out at industry conferences including Advertising Week in New York this week, which AOL has been blanketing with posters playing up its new content plans.
Advertisers like the idea of making AOL a go-to place for buzzworthy news and entertainment. But they aren't convinced it will work.
"We see good intentions, but it doesn't seem to be playing out yet," says Steve Kerho, senior vice president media and analytics for Organic, a digital-marketing firm owned by advertising agency Omnicom Group Inc. "It is a little worrisome."
TechCrunch's Mr. Arrington is an influential yet polarizing figure in Silicon Valley. He commands respect from entrepreneurs keen for him to cover their businesses and breaks a fair amount of news about the industry. But he doesn't shy from speaking his mind on controversial issues. Recently, he set the blogosphere abuzz with a post accusing tech investors of colluding on deals.
Messrs. Arrington and Armstrong announced their pact on stage at a conference the website was hosting Tuesday. In brief remarks, Mr. Armstrong said that the company would seek to build out a major technology content business, with Mr. Arrington and the TechCrunch team as one pillar.
AOL's transition beyond its legacy dial-up business began in 2006 when the company, then owned by Time Warner, decided to stop charging a subscription fee for users who already had high-speed Internet service or dial-up. That meant that AOL members with their own Internet connections, could browse its services for free.
It was a bold gamble that a brand that built itself on charging consumers to connect them to the Internet would find its future growth from online advertising instead.
Mr. Armstrong, a former senior advertising executive at Google Inc., ran with the vision. After joining the company in April 2009, he kicked off a lengthy review, code-named "Project Atlas" to address whether to sell the access business, which was hemorrhaging subscribers.
He decided not to, noticing that AOL's paying subscribers were big users of AOL sites and responded to more ads. Instead, he focused on increasing advertising revenue by acquiring and producing more content to show ads against.
As the market for basic online services, like email, has grown more competitive in recent years, Web companies are trying to draw viewers and advertisers by supplying them with articles and videos about topics they care about, ranging from cooking to cars. To do so, they've been hunting for content companies focused on select audiences, like moms, as well as those that can generate lots of content inexpensively by relying on freelancers and technology that tracks what's popular.
AOL has been particularly zealous. It acquired two companies that specialize in local news, Going Inc. and Patch Media Corp. Patch operates close to 200 local community sites devoted to towns like Agoura Hills, Calif., and Montclair, N.J. It also launched new technology to mass-produce articles based on popular topics and struck deals with celebrities including the Jonas Brothers. AOL also acquired online video company Studio Now Inc. in January for about $36.5 million.
Still, in 2009, around 43% of the company's revenue came from its dial-up business and related paid services, like software that provides extra privacy protection. For 2010, several analysts are estimating that figure will stick to around 42%.
In the second quarter, the number of people in the U.S. who paid $9.99 a month or more for AOL's Internet service fell 25% from the previous year to 4.36 million.
Mr. Armstrong estimates that about 10 million to 12 million visitors to AOL sites are tied to its dial-up subscription business. Overall, the AOL site had roughly 107 million unique monthly U.S. visitors in August, according to comScore.
Mr. Armstrong said in an interview that the company isn't giving up on the subscription business and has plans to expand it by offering more paid services, along the lines of the security or fitness-tracking software it already offers.
"Paid services is an interesting part of our business and our future," he said.
