AOL AND YAHOO MERGER MAKES LITTLE SENSE

Original Story: CNBC.com

A former president and chief financial officer of Yahoo said a merger with AOL would make little sense.

"We've all looked at that deal so many times," said Sue Decker, who left Yahoo in 2009. "And I think you just get something that's even bigger, growing slower"—a line that generated chuckles around a roomful of female executives who had gathered in Dana Point, Calif., for the Fortune Most Powerful Women's conference. A Boston M&A Lawyer provides professional legal counsel and extensive experience in many aspects of merger and acquisitions law.

Decker's comments on Monday came days after an activist hedge fund, Starboard Value, urged Yahoo to consider a pairing with AOL, cut bloat, and sell Asian assets. Yahoo CEO Marissa Mayer responded by saying she would review Starboard's letter, but Yahoo executives said as recently as July that they would not consider an AOL deal. A St. Louis Business Lawyer has experience in corporate dispute cases.

Yahoo did not immediately respond to a CNBC email sent Tuesday seeking comment.

Meanwhile, a crucial question hangs over Yahoo: What should it do with the roughly $5 billion it will receive in cash for selling a portion of its Alibaba Group holdings?

So far, Yahoo has said it will return at least some of the money to shareholders, and Mayer is in talks about a likely investment with the messaging-service start-up Snapchat, a move that would be the latest in a string of Yahoo deals with smaller companies.

Decker, a onetime Wall Street analyst who joined Yahoo in 2000 and now serves on several corporate boards, including Berkshire Hathaway, suggested that her former employer would be best served by returning to its core competencies: content about topics such as sports, finance and general news.

"If they could get deeper in the things they're really great in, and shed other things," she said, "I'd like to see that." Yahoo has long struggled with botched attempts to expand by reaching beyond its basic strengths, Decker added, and the company had suffered for it.

"To get identity is going to be critical," Decker said.

In other remarks at the Fortune gathering, Mylan CEO Heather Bresch was somewhat dubious about the role of activist hedge funds in reforming companies in general.

Bresch said hedge funds seem to quickly flip in and out of stock holdings.

"It used to be about building value. Now it's about trading value," she said. "If they hold your stock for five minutes, that's more than their algorithms will let them."

AOL and Huffington Post Finally Reporting Revenue

Story first appeared on USA Today -

Two years after it acquired the Huffington Post, AOL still faces challenges in courting consumers and advertisers — but it is beginning to show progress.

While scheduling a business lunch in late 2010, Huffington Post co-founder Arianna Huffington and AOL CEO Tim Armstrong each had a question for the other.

Huffington, who was hosting the meal at her home, asked whether there was anything he didn't eat. (The answer: mushrooms.)

Armstrong asked whether he could bring along his chief financial officer. That made the AOL honcho's intentions clear, and he swiftly expressed them when the group gathered.

"Up front, before the first course was served, he said he wanted to buy The Huffington Post," Huffington said in an interview at her New York office this week.

Soon after that meeting — during halftime at Super Bowl XLV in Dallas — the deal was signed. AOL paid $315 million for the site.

Together, the companies would create "a digital destination that delivers unmatched experiences for both consumers and advertisers," Armstrong said when the deal was announced.

Two years after that acquisition, and nearly four years after Armstrong took the helm, AOL still faces challenges in courting consumers and advertisers. But it is finally showing progress.

On Friday, AOL reported its first increase in quarterly revenue in eight years. Revenue rose 4%, to $599 million, in the fourth quarter. Net income, bolstered by a $16.8 million gain from the sale of overseas assets, was $35.7 million, or 41 cents a share. In 2011, AOL earned $22.8 million, or 23 cents a share.

"We have walked through the valley of the turnaround and have gotten to growth," Armstrong said during Friday's earnings call.

Managing an evolution

Created as a Web portal and Internet access provider, AOL today has evolved into an ad-supported technology and media giant.

To achieve its goals, AOL cut costs, while ramping up consumer- and advertiser-friendly content such as video and apps. Ad revenue for the company hit $411 million in the fourth quarter, up 13% from the same period in 2011. Full-year ad revenue was up 2.8% to $1.3 billion.

The Huffington Post acquisition has helped power its growth.

Across AOL's properties, the level of monthly U.S. unique visitors was 110 million in December, up from 107 million in December 2011, but down from the 112 million in December 2010, according to tracker comScore. The Huffington Post's U.S. monthly unique viewership has steadily grown — to 46 million in December from 25 million two years earlier, according to comScore figures provided by Huffington Post.

AOL doesn't break out profit on The Huffington Post or other media divisions, but for the first time on Friday, it disclosed results of a "brand group" category that includes The Huffington Post, AOL.com, TechCrunch, local-news provider Patch and other content-focused assets.

That group's revenue grew 4% to $213 million for the fourth quarter. Adjusted operating income before depreciation and amortization was down 34% to $8.8 million for the quarter. The drop-off was primarily the result of increased investment in editorial staff and sales representatives and higher marketing expenses, AOL said.

Despite its recent revenue growth, AOL still faces hurdles. It lost share in the overall U.S. digital ad market in recent years, according to industry tracker eMarketer. AOL had a 2.5% share of all U.S. digital ad revenue in 2012, down from 2.8% in 2011 and 3.3% in 2010.

U.S. digital ad spending grew 14.9% in the fourth quarter to $10.58 billion, according to eMarketer estimates. Google has the biggest share — with more than 41% of all digital ad revenue in the U.S. Yahoo has the second-biggest share.

A well-known personality

Like other top media executives, Arianna Huffington is a frequent attendee at advertising and technology events. But the Huffington Post Media Group editor-in-chief is well-known outside the industry. She is present at major political outings and featured in society pages. Her Greek accent and outgoing personality are so familiar that she is sometimes impersonated on NBC's Saturday Night Live.

Unlike AOL, which had a "stodgy and old" image in recent years, Huffington and the company she co-founded are more current and cutting edge, says Robert Passikoff, president of brand loyalty consulting firm Brand Keys.

Passikoff likens AOL to "a kid in high school who isn't cool anymore." But by aligning with The Huffington Post, the AOL brand acquires some rub-off hipness. "There is a halo effect," he says.

The Huffington Post brand, as well as sibling unit TechCrunch, also tend to attract more tech-savvy users than the traditional AOL brand, notes Ben Schachter, an analyst at Macquarie Securities.

TechCunch and The Huffington Post help AOL draw consumers who aren't tethered to laptops, but use mobile devices such as tablets and smartphones, and will view alternative ad-supported content such as videos, he says.

Armstrong told USA TODAY that The Huffington Post's strong brand awareness, as well as its focus on innovation, gives Huffington Post "game-changing global potential."

Huffington: 'Best of both worlds'

Asked if she would want to buy her company back, Huffington says that "there is no reason to even contemplate anything like that."

"We have the best of both worlds," she adds. "We are a stand-alone entity within a great parent company that is very supportive of our big dreams."

But for The Huffington Post to keep its relevancy, she says, "it has to keep growing and evolving and engaging readers in new ways."

To that end, Huffington Post is:

• Extending global reach. Last year, The Huffington Post launched six international editions. It's now in the UK, Canada, France, Spain and Italy. Next up are areas in Germany, Africa and Asia. "We're going to go from international to global," says Huffington Post Media Group CEO Jimmy Maymann.

• Adding more videos. Video network Huff Post Live launched in August. It provides 12 hours of content, such as interviews with well-known personalities, on weekdays.

• Going mobile. Last year, The Huffington Post introduced an iPad app for HuffPost Live and an app for an iPad magazine. It also launched a wellness-focused "GPS for the Soul" iPhone app this year.

• Increasing lifestyle content: The site will bolster its coverage of personal topics such as divorce, weddings, books and travel.

Yahoo Profits On The Upswing

Story first appeared on USA Today -

Marissa Mayer has brought the yippee! back to Yahoo.

Under a company reboot, the Internet pioneer reported earnings that beat analyst forecasts after the close of markets Monday.

Shares of Yahoo initially jumped 4.5% to $21.22 in after-hours trading following the report.

Yahoo reported fourth-quarter profit of $272 million on revenue of $1.22 billion, compared with a profit of $295 million on revenue of $1.17 billion a year ago.

The revenue uptick marks a first year-over-year gain in four years as CEO Mayer has begun turnaround efforts at Yahoo.

Yahoo's adjusted earnings per share of 32 cents beat the 27 cent average of analyst estimates from Thomson Reuters.

"There's a lot of work to be done," Mayer said on a conference call with investors and analysts. "Mobile will be key to our business."

There's a huge exodus of consumers from PCs spending more time on mobile devices that's causing companies ranging from Google, Facebook, Zynga and Yahoo to scramble to meet new advertising needs.

Shares of Yahoo have shot up 30% since Mayer took the role in July on optimism that the former Google executive can turn around the company's fortune as it battles for advertising.

Yahoo reported a 14% increase in search revenue in the quarter compared with last year. "Theoretically, there's a lot of growth potential if they can boost search," says IDC analyst Karsten Weide, a former Yahoo employee.

Google holds 66.7% of the search market, trailed by Microsoft, with 16.3%, Yahoo's 12.2%, Ask.com's 3% and AOL's 1.8%, according to market researcher ComScore.

Despite gains, Yahoo saw a 5% decline in display advertising revenue from a year ago. Yahoo has been dogged by a need for better tools to serve advertisers. "Agencies are increasingly looking for more automation — Yahoo is kind of tepid in that regard," Weide says. I "think that's one of the ways that Yahoo can get out of a crisis."

Yahoo is the No. 2-most visited U.S. Internet destination behind Google, according to ComScore. Ranking after Yahoo comes Microsoft, Facebook, Amazon.com and AOL.

Yahoo said Flickr usage is up 25% since the company refreshed the online photo service in the quarter.

Patch.com Not Doing Well for AOL

Story first appeared in The Wall Street Journal.

Patch.com, a network of small-town news sites owned by AOL Inc., has emerged at the center of a tug of war over the Internet company's future.

The high cost of running the local-news sites has fueled a campaign by dissident investor Starboard Value LP against the AOL Chief Executive's strategy of investing heavily in online content.

Starboard, which is waging a proxy battle to win several seats on AOL's board at next month's annual meeting, says that Patch should be closed, sold or put into a joint venture, with a partner sharing the cost.

Inside AOL, Patch is also a flash point. The creator of Huffington Post, who took charge of Patch and AOL's other news and entertainment sites after AOL acquired her Huffington Post last year, distanced herself from the business after disagreements over how it should be run.

The AOL CEO, has held his ground in defending Patch, which he co-founded in 2007 before he joined AOL, but he recently promised to make it profitable by next year. In a small step toward that goal, Patch said Tuesday it will cut around 20 jobs, or less than 2% of its workforce. The cuts will come from merging the management of its eastern and southern regional reporting operations.

Whether he can make Patch a success could determine his fate at AOL. As the ad-supported network has expanded to more than 850 towns from 30 in the past two years, its annual loss has widened sharply to more than $100 million in 2011, analysts say.

The main problem: It is tough to sell enough online ads to cover the cost of producing local news, especially while maintaining a local reporting staff and a local advertising sales force.

Several big media companies, including Washington Post Co., Politico parent Allbritton Communications, New York Times Co. and Gannett Co., have given up on similar experiments after failing to wrest a profit from online local news.

Others are still trying. Examiner.com, backed by a billionaire, draws roughly the same traffic as Patch, according to comScore, but its approach differs from Patch's.

The website has a full-time editorial staff of fewer than 30 people, who organize articles, photos and other media submitted by more than 85,000 freelance local "examiners." These examiners write about topics ranging from restaurants to running. Patch, by contrast, employs nearly 1,000 full-time journalists

The AOL CEO thinks Patch is on the right track, and just needs time to hit its stride.

Frustrated by the lack of local online news about his hometown of Greenwich, Conn., Mr. Armstrong developed the business model for Patch with Jon Brod, the former president and chief operating officer of his private investment group.

The idea was to target wealthy small communities that generated about $20 million a year in advertising though TV, radio, newspaper and direct marketing.

Patch has fallen well short of that target. AOL says the business is on track to bring in between $40 million and $50 million in revenue this year. That translates to an average of $50,000 for each of its 850 local sites. But the average Patch site costs between $150,000 and $200,000 a year to operate, or a total of $160 million.

The recent withdrawal from overseeing Patch highlights internal divisions over the operation. Following Huffington Post's acquisition last spring, Ms. Huffington set about integrating Patch with the Huffington Post.

She recruited the founder of a successful network of hyperlocal blogs in the New York borough of Brooklyn, to improve Patch's ties to its local communities, and Patch quickly adopted a blogging platform modeled on the Huffington Post's.

The blogging platform attracted more than 20,000 local bloggers within a year, pleasing Patch's local and regional editors. The sites also got a traffic boost when their local scoops were linked by the Huffington Post.

But they sometimes chafed at top-down directives, called "fire drills," that required Patch journalists to pitch in with reporting for national trend stories in the Huffington Post, draining resources from their local mission, according to several people familiar with the matter.

The creator of Huffington Post also ruffled feathers by promising local editors they could each hire associate editors to help with their workload, even though salaries for such posts weren't part of the website's business model, according to people familiar with the matter.

People familiar with her plan said the associate editors would have been paid for with savings in freelance costs.

Within six months of AOL's merger with the Huffington Post, the involvement in Patch had waned, according to several people familiar with the situation. In May, she announced that she was scaling back her portfolio to focus on her namesake news site.

The good news for Patch is that its traffic has grown sharply, swelling to 10.3 million visitors in April from 6.9 million a year earlier, according to comScore. Patch attributes the improvement largely to growth at its established sites.

In addition, more than a third of Patch's content now is generated by users uploading announcements, photos and other content, helping Patch shrink its budget for freelancers.

As well as relying even more on content from the public, Patch is planning to move beyond advertising and into local commerce, and to look for new sources of revenue in partnerships.

Last week it began a partnership with WPIX, a New York TV station owned by Tribune Co., in which a Patch correspondent delivers the area's top local news stories from Patch headquarters during the evening news.

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HuffPost Creator Being Restructured

Story first appeared in The Wall Street Journal.

The creator of The Huffington Post has acknowledged Thursday that her portfolio at AOL Inc. is being scaled back to include only the Huffington Post, undoing a structure put in place when her website was acquired by AOL last year.

After buying the Huffington Post for $315 million, AOL gave her editorial oversight of all its properties, including tech-news site TechCrunch, the patch.com network of local news sites, MovieFone and MapQuest. In addition, more than 30 AOL properties, such as Politics Daily, were absorbed by the Huffington Post.

The management structure created tensions with staff at some of the properties. Patch management, for instance, differed with her over strategy for the local news sites, according to people familiar with the matter. The founder of TechCrunch quit in a public spat with her.

At the same time, she has been gearing up for a major international expansion of the Huffington Post and the introduction of a streaming video network. The shift gives her more control of the Post going forward.

What she had originally asked for was for The Huffington Post to be more independent, to have technology, marketing and business development, so that they can accelerate growth, and to be freed up to just concentrate exclusively on HuffPost.

While various aspects of the restructuring were reported over the past month, these comments marked the clearest indication yet of what her new role would be.

The restructuring was finalized this week because the transfer of the last of the 33 AOL brands that the Huffington Post was to absorb was completed Monday.

The merger has had clear benefits for both the Huffington Post and AOL. Traffic to the Huffington Post has surged to nearly 39 million from 24 million unique visitors, according to comScore.

That has helped offset declines elsewhere at AOL from defecting subscribers and aging services such as AOL Instant Messenger. Search value is declining and could be revived with the help of a professional SEO Company.

The wider separation of the Huffington Post and the rest of AOL, however, has fueled questions about the Huffington Post's long-term future at the company.

Ms. Huffington said Thursday that she had been approached by private-equity firms interested in buying the Huffington Post, although the overtures went nowhere. She said she had no intention of leaving.

The change in the role comes as AOL is facing a proxy battle with activist shareholder Starboard Value LP, which has criticized the AOL CEO's strategy of investing heavily in online content.


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Desperate For Cash AOL to Sell Unused Patents to Microsoft

Story first appeared in The Wall Street Journal.

AOL Inc. agreed Monday to sell more than 800 patents and related applications, along with a nonexclusive license to its remaining portfolio of patents, to Microsoft Corp. for about $1.1 billion.

The news sent AOL shares surging as the online media company said it intends to return a "significant portion" of the sale proceeds to shareholders. The deal comes six weeks after activist shareholder Starboard Value LP, which is mounting a proxy contest for seats on AOL's board, highlighted AOL's patent portfolio as an "underutilized" asset and complained that the company wasn't acting to realize value from the patents.

At the time AOL said it had already hired advisers to realize the value of the patents. On Monday, the AOL Chief Executive  said that the deal with Microsoft represents the culmination of a robust auction process for our patent portfolio.

Assuming the deal had been done at the end of 2011, AOL said it would have had some $15 a share in cash on hand.

Shares of AOL surged 43% to $26.32 in early trading, while Microsoft slid 1.5% to $31.06.

The transaction is expected to close by year's end, and at that point AOL will have an announcement for shareholders on what the company will do with its cash.

Starboard has been critical of the strategy of investing heavily in online content businesses as a way of building up the company's ad sales. The investor, which owns 5.2% of AOL's shares, wants AOL to take action to create value.

In a letter to AOL's board in late February, it said it had heard from multiple parties specializing in intellectual property valuation who believed AOL's patents could produce in excess of $1 billion of licensing income if appropriately harvested. These parties had expressed severe frustration that AOL has been entirely unresponsive to their proposals.

Starboard was unavailable for immediate comment. The firm has nominated up to five candidates for election to AOL's board at this year's annual meeting, which is scheduled for June 14.

AOL hasn't said exactly what the patents cover, but the company noted that its remaining patents and patent applications include advertising, search, content generation, social networking and mapping technology.

The AOL spokesperson has said previously that the company made a point of securing the patents from Time Warner Inc. when AOL spun off from them, and that the company began taking a close look at them in September.

The race for patents has heated up in the tech space. Among other recent deals, Google Inc. agreed to acquire Motorola Mobility Holdings Inc. last year for about $12.5 billion, partly to secure its lucrative patent portfolio, and a number of bidders pursued Nortel Networks Corp.'s patents at auction as well.

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Huffington Post Acquisition A Bright Spot for AOL

Story first appeared in The New York Times.

One year after its acquisition by AOL, The Huffington Post has become a source of growth for the beleaguered company, which is still trying to shed its dial-up Internet image. Now, in what the Huffington creator characterizes as a move to keep the Web site’s growth accelerating, she has taken several of its business functions out of AOL and under her control.

The revamping is intended to help The Huffington Post maintain the innovative spirit of a start-up. Technology, business development, marketing and communications units that were woven into AOL last year will begin to report to her. The advertising sales unit will remain inside AOL at the moment.

The changes appear to give the creator more authority within the closely watched media company, where her title is president and editor in chief of the Huffington Post Media Group. She will continue to report to the AOL chief executive, whose contract was extended last week to run through early 2016.

In the year after the merger, editors reported to the creator, but employees in other departments, like technology and marketing, reported to various departments in AOL.

On Thursday, the Huffington creator is expected to announce that she has chosen a top executive at NBC News to run global strategy, marketing and communications.

In the last year, the Web site started four international editions — in Canada, including a French edition in Quebec, Britain and France — and announced plans for two more in Spain and Italy. It has also added dozens of content sections, which show great potential with SEO optimization.

Those additions have helped the site become a bright spot for AOL. While visitor totals for AOL as a whole have dipped slightly in the year since the $315 million acquisition was completed, visits to the Huffington Post Media Group (a combination of The Post and some of AOL’s sites) have shot up, according to analysis of comScore data. That is a sign of how significantly The Post’s traffic has helped AOL; executives say The Post helped stabilize AOL’s traffic statistics.

The weaving and unweaving of operations may reflect the difficulties that mergers and acquisitions routinely create.

The combination of AOL and The Huffington Post has been a source of fascination for many in the media business for many reasons, chief among them Huffington’s own force of personality and her sites’ tendencies to collect the work of others. They are trying original reporting on The Huffington Post, citing recent series about foreclosures and poverty in America.  Proper SEO implementation would greatly increase the visibility of these new original series.

The Post is preparing to start a streaming video network that will have 12 hours a day of live programming. It is scheduled to start by the end of June. And a former editor for The New York Times who is now the executive editor of The Post, is in charge of a magazinelike app, now in the prototype stage, that would come out weekly and would contain highlights of the site. The app’s creation was first reported last month by Forbes.

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Yahoo Struggles With Content

First appeared in the Wall Street Journal

Ousted Yahoo Inc. Chief Executive Carol Bartz faced a plight all too familiar to many of her peers: Making money off digital content isn't easy and it's getting harder.

As Web traffic explodes, Internet companies are struggling to profit off ads shown next to the articles, videos and other content offered to viewers.

It's a simple rule of any market. The more information that is created, the more the value is reduced. And despite attempts to woo spending with bigger, bolder and more targeted ads, services that help consumers navigate that content, namely search, remain the big money makers online.

"People tell me that content is king, but that is not true at all," says Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the digital-media unit of Publicis Groupe SA. "Most people make money pointing to content, not creating, curating or collecting content."

Internet pioneers Yahoo and AOL Inc. are losing out to Facebook Inc. and Google Inc., both of which are adept at helping point the way to pertinent or interesting material. As a result, Yahoo and AOL are getting left behind in the fast-growing U.S. market for online advertising, which ballooned 20% to $31.3 billion from 2010 to 2011, according to eMarketer.

Yahoo and AOL's shares of the overall U.S. online advertising market will drop to 11% and 2.7% in 2011, respectively, according to the research from, down from 16.1% and 4.4% in 2009.

Their businesses have been plagued by a range of missteps that extend far beyond their current regimes. Both were slow to recognize the appeal of social-networking and to update their once dominant email services to compete with new rivals.

Excessive turnover and extensive bureaucracies have strained their relations with Madison Avenue, say advertising executives. Ms. Bartz recently attributed Yahoo's weaker-than-expected ad sales to heavy turnover among advertising executives.

Yahoo said in a statement that the company has been meeting with advertisers and agencies who say they excited by the advertising opportunities at the company. A spokesman for AOL declined to comment.

A few years ago, scale virtually guaranteed profits if Internet companies had relationships with marketers, as there were few sites that could deliver large audiences to advertisers. But advertisers now can turn to a wide range of competitors to reach a similar number of people, and that has pushed down the amount of money they spend on those sites and the price for ad rates on the portals.

"What do Yahoo and AOL bring? In fact, they don't bring all that much," said Rob Norman, chief executive of WPP PLC's GroupM North America, who says marketers view them as large quantities of mostly commoditized inventory. "Just because you have a lot doesn't mean that you have something that is of distinct value."

Pricing trends across both properties vary depending on where the ads appear, advertisers say, but overall rates aren't rising fast enough to compensate for meager to flat traffic growth. In the second quarter, AOL's revenue fell 8.4% from the year earlier to $542.2 million.

Yahoo's revenue fell 23% to $1.3 billion.

The average cost to reach one thousand views across both Yahoo and AOL sites has fallen steadily in the past year, ad executives say. At Yahoo, that rate dropped to an average $6.50 in July 2011 from $7.65 in July 2010, while at AOL, that rate dropped to an average of $7 in July 2011 from $9.45 in July 2010, according to SQAD WebCosts. Back in July of 1998, Yahoo was fetching about $25 per thousand. A Yahoo spokeswoman said their internal data isn't consistent with WebCosts' data.

Some companies have responded by cutting back the number of ads to boost their value. AOL stripped ads off several of its marquee sites in recent years, including AOL.com, its fashion site Stylelist and movie site Moviefone to make room for more premium advertising.

Both AOL and Yahoo are under pressure from "advertising exchanges," the lingo for services that allows advertisers to bid for ad space across a multitude of properties that reach a particular type of user. Increasingly, marketers will turn to the advertising exchanges directly to buy high volumes of cheap online ads instead of negotiating with big publishers like Yahoo and AOL for more expensive ads.

In addition, marketers can target those ads bought via exchanges directly to people who are likely to be interested in their product or service, regardless of the context of the site where they appear. That gives the big portals less bargaining power, advertisers say. Yahoo runs a major exchange but the business isn't growing fast enough to restore overall revenue growth.

While it's a juggernaut, Facebook isn't immune from the problem of expanding inventory. Advertisers say most ad rates on the social network remain low, as its growing traffic leads to a proliferating number of pages it can show ads on.

"Sometimes there is an irrational desire to be involved with things that are just on upswings," says Mr. Norman. "The value of (marketing on Facebook) may be open to some questions."

Smaller publishers are also feeling the changing economics acutely. News sites such as Salon and Slate aren't consistently profitable. Upstarts like the Daily Beast have yet to reach profitability though executives say the three-year-old site is ahead of its pace. Slate last month laid off a handful of editorial staffers, citing unexpected "head winds" in advertising.

AOL May Acquire Yahoo, Report Says

Information Week

 

Shares of Yahoo were up more than 12% in pre-market trading Thursday following a report the Internet portal may be bought out by a consortium of investors that includes AOL.

The Wall Street Journal, citing unnamed individuals said to be familiar with the plan, reported that Silver Lake Partners and Blackstone Group were among the private equity firms that could team up with AOL to buy out Yahoo.

The newspaper said the discussions were very preliminary. Yahoo and AOL have not publicly commented on the report.

Yahoo's shares, priced at $17.09 early Thursday, have been on a roller coaster for the past couple of years as the company engaged in an on-again, off-again courtship with Microsoft. Microsoft made several attempts to purchase Yahoo outright, but ended up striking a partnership with the company.

Under the ten-year pact, announced in July, 2009, Microsoft has placed its Bing search engine on all Yahoo sites and, initially, keeps 12% of the revenue from Yahoo-driven searches. Yahoo is handling sales and marketing for premium search ads for both its properties and Microsoft's.

Yahoo can terminate the arrangement if search traffic generated by the alliance falls below a specified percentage of rival Google's traffic. Yahoo also retains the right to expand the partnership by adding Microsoft's mapping and mobile search services to its Web properties.

One complication of any deal involving Yahoo and AOL is that AOL's search tools are in part powered by Microsoft rival Google. One possibility is that AOL could also turn to Microsoft's Bing search engine if it ties up with Yahoo.

Microsoft, Yahoo, and AOL would together control about 30% of the U.S. search market, compared to Google's 65.4% stake, according to the latest figures from market watcher Comscore.

AOL Shifts Emphasis

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.

Investment Firm Buys AOL's Bebo

San Francisco Chronicle

 

AOL Inc. paid $850 million two years ago for Bebo Inc., but on Thursday unloaded the slumping San Francisco social-networking firm in a deal reportedly worth less than $10 million.

Criterion Capital Partners LLC, a Los Angeles private investment firm that specializes in turnarounds, takes over a company that is more popular outside of the United States, but by far is overshadowed by social-networking rivals Facebook, MySpace and Twitter.

Exact terms were not disclosed, but AOL chief executive officer Tim Armstrong said in a memo to employees that the deal for AOL "will also create a meaningful tax deduction, which should allow us to more effectively manage our tax strategy."

Bebo has 30 employees working in offices in the same South of Market building that houses Twitter Inc. Bebo also has three workers in the United Kingdom. Its headquarters will remain in San Francisco.

In April, Bebo's future didn't look bright after AOL said it would either sell or shut Bebo down.

AOL was still part of Time Warner Inc. when it bought Bebo in May 2008 for $850 million, although Time Warner chief executive officer Jeff Bewkes has later said the company "may have overpaid."

At the time, Bebo was particularly popular in the United Kingdom, but Bebo's fortunes waned as Facebook Inc. overtook MySpace as the world's most dominant social network.

According to ComScore Inc., Bebo had 12.6 million unique visitors worldwide in April, down from 26.9 million one year before. Bebo's U.S. traffic dropped to 4.9 million visitors in April 2010, from 10.2 million the previous April.

Meanwhile, traffic to Palo Alto's Facebook zoomed from 307.1 million worldwide and 67.5 million in the United States in April 2009 to 519 million worldwide and 121.8 million in the United States in the same month this year, according to comScore.

AOL said Bebo also has members in Ireland, Australia, New Zealand, Canada, Poland, France, Germany, Italy, Spain, India, Pakistan and the Netherlands.

Criterion Capital Managing Partner Adam Levin led the acquisition, joined by business strategist Paul Abramowitz and Web entrepreneur Richard Hecker, a news release said.

"The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a stand-alone entity and in the context of our broader investment objectives," Levin said in a statement.

But AOL founder Steve Case, who is no longer with the company, used his Twitter account to voice his skepticism about the deal.

"AOL buying Bebo for $850 million and then selling 2 years later for $10 million doesn't seem like a winning strategy," Case said in the tweet.

Augie Ray, a social-media analyst with Forrester Research, said that "at this point, it does not seem Bebo has any serious chance to compete as an all-purpose social network."

However, he said, Bebo's best chance could be to concentrate on a niche audience, in the same way MySpace "is focusing more on social sharing around entertainment."

Or Criterion could "simply let Bebo run the course that it's on. It still receives several million visitors per month, and even though Bebo continues to shrink, those visitors still represent ad revenue," he said.

AOL Struggling for Ads during Overhaul

Fortune

 

AOL was coming back with a vengeance, brand-new AOL CEO Tim Armstrong told Fortune's 2009 Brainstorm Tech conference last year. He was fresh out of the starting gate, and had just done a 100-day "listening tour," checking in with AOL's global workforce.  He was pumped, and ready to shake up the brand.

But the problem with cleaning up a brand is that there's some turmoil in the interim. For AOL (AOL) that meant trying to rejuvenate its image, cutting costs, cutting jobs, yanking some investments, making others. Armstrong also needs to figure out how to turn AOL's strengths -- instant messaging and customer familiarity -- into a profit.

At last year's conference, Armstrong said that AOL was going to do for online content what Google (GOOG) did for online advertising. That is, build a thorough, targeted delivery method from the ground up. Unfortunately, you need advertising to pay the bills to make the content, and advertisers have been cautious during AOL's massive makeover.

Advertising revenue dropped 19% percent to $354.3 million, according to AOL's first-quarter earnings report. The company's profits were $34.7 million, down from $82.7 million last year. Armstrong said that AOL has a ton of data about users, which should be money in the bank as far as targeted advertising. But right now, the company is still working on tuning up the platform.

Armstrong just appointed 28-year-old Maureen Sullivan as chief marketing officer -- she used to work for Google as Armstrong's assistant. At AOL, she's been working on logo redesigns to freshen up the site. AOL has also built a "Homepage Blog," which updates users about new AOL features like themes and privacy settings. It's only had one post in 2010, and it was in February.

Last year, Armstrong mentioned that AOL was going to move social networking site Bebo into the venture capital arm of the company and monitor its performance from there. In April, AOL announced that the match didn't pan out, and it would either sell Bebo or shut it down. The company is still looking for a way to link its instant messaging capabilities, which are strong, with solid social networking partner.

AOL's to-do list also includes plans to modernize Mapquest and manage a host of other offspring properties, like Engadget, Autoblog, and hyperlocal journalism site Patch.com, that will fuel AOL's proposed strategy to carpet-bomb online content. At the "D: All Things Digital" conference on June 3, Armstrong announced that AOL would be looking for a partner to help power its search engine for the site. He said that so far, he's been talking with his former company, Google.

Armstrong is on deadline, according to a Business Insider blog post that mentioned an investor note from AOL chief financial officer Artie Minson who said that Armstrong will have another year to start pulling the company up by its bootstraps.

He will appear again this year at Brainstorm. We'll see if the overhaul is over and he can really start pushing a fresh brand.

Struggling Internet Pioneer AOL turns 25 Years Old

USA Today

 

SAN FRANCISCO — In a year steeped in significant anniversaries for tech companies, one that has been largely ignored is the 25th of online pioneer AOL.

Today, the company originally known as Quantum Computer Services, which introduced millions of Americans to the Internet, is still around but not what it used to be.

Sales are declining and its subscriber base is dwindling as it copes with a slide in online advertising revenue and tries to recast itself amid stiffening competition.

AOL has been trying to reinvent itself as a content and advertising company since it regained its independence last year from media giant Time Warner, with which it merged in 2001. Time Warner spun off AOL to shareholders in December, ending what many experts called the most disastrous corporate merger ever.

Which leads to the question: Can AOL regain its mojo?

As the company enters Year 26 of its existence, its current CEO and one of its founders both think it can, as they reflect on AOL's past, present and future.

"Sure, it will be around for a long time," AOL co-founder Steve Case says. "The question is, how do you return it to being a leader. I think (AOL CEO) Tim (Armstrong) is on the right track."

Adds Armstrong: "The AOL brand is still one of the most meaningful in Internet history. In many cases, it was (people's) first (experience) online."

America Online took consumers by storm in the 1990s as a dial-up Internet company. During its heyday, it helped redefine how people communicate, ushering in an era of PCs with built-in modems and chat-room conversations. It was even the subject of a Tom Hanks-Meg Ryan romantic comedy, You've Got Mail, in 1998.

At its zenith, AOL had nearly 30 million members.

But its glory was short-lived in the fast-paced digital age. Dial-up business shriveled over the years as faster broadband connections from cable and phone providers have become increasingly popular. During its most recently announced quarterly results, in late April, AOL said its dial-up Internet service revenue sank 28% to $283 million, and its advertising revenue slid 19% to $354 million.

Even deeper, AOL could not shake the stigma of being considered a website for "newbies," says Ken Lim, chief futurist at CyberMedia Convergence Consulting.

The advent of search engines meant more competition, offering consumers a cornucopia of other content-based sites. "The growth of search engines opened up the Internet, and made it OK to leave the walled garden of an AOL for safer alternatives," Lim says.

And yet, AOL remains one of the most recognizable brands in the world and a big draw. It ranked No. 5, in traffic, among all U.S. Web properties in April, with 115 million unique visitors, according to market researcher ComScore. (Google was No. 1, with 176 million unique visitors.)

"Not bad at all," analyst Lim says. "But AOL needs to figure out a way to maintain and grow that. Like everyone else, it comes down to monetization."

Reinventing AOL

The key to AOL's present and future lies in its ability to be the go-to content creator for emerging online platforms on Apple, Facebook and Google, where hundreds of millions of people congregate, Armstrong says.

AOL has been working to recast itself as a large-scale content and advertising business, operating websites such as tech blog Engadget, sports specialist FanHouse and personal-finance site WalletPop. It also is gearing up to launch Patch, a network of dozens of community news sites to scoop up local online ads.

"We're like the Procter & Gamble of the Web," Armstrong says.

But the process has been difficult, with advertising revenue dropping throughout last year. Revenue for search and display advertising suffered double-digit percentage declines, and the company said it expects ad sales to continue falling for the rest of the year.

That forced AOL earlier this year to shed 2,300 workers as part of a plan to slash operating expenses by $139 million through payroll cuts and exiting unprofitable businesses.

Last month, AOL announced a deal with Digital Sky Technologies, an Internet company targeting Russian-speaking markets, to buy its ICQ instant-messaging service for $188 million. Additionally, AOL acknowledged it is evaluating the sale or shutdown of its Bebo social networking site this year.

It's all part of a roller-coaster ride for AOL, which has survived wrenching changes in a fast-paced industry that is maturing. This year, Microsoft turned 35 years old, and Cisco Systems celebrated its 25th anniversary. Next year, Apple turns 35 and IBM a century old.

"AOL was at the epicenter of the Internet being the hot thing," Case says.

"It was a struggle, and hardly an overnight success," Case says, noting it took AOL seven years from its creation in 1985 to reach 200,000 customers.

"But we stuck with it and made our mark," he says. "We believed that some day the online medium would be ubiquitous."

AOL Looks to Sell or Shut Down Bebo

SAN FRANCISCO (AP) - The struggling Internet company AOL Inc. plans to sell or shut down the online community Bebo nearly two years after buying it for $850 million in an expansion of its social-networking ambitions.

In an e-mail to employees Tuesday, Jon Brod, who runs AOL's startup acquisition and investment unit, AOL Ventures, said Bebo would need a "significant investment" to remain competitive.

Although Bebo has been in the shadow of rivals such as Facebook, it has been strong in foreign markets, including Britain. AOL wanted to tap that strength abroad to drive traffic to AOL's other free, ad-supported Web sites, especially internationally, while leveraging AOL's instant-messaging communities, AIM and ICQ, to try to grow Bebo in the United States.

But Bebo's audience has instead been slipping in the U.S. According to comScore Inc., Bebo had 5.1 million U.S. users in February, down from 5.8 million a year earlier and a sliver of the 210 million that Facebook has.

Brod said AOL will look for potential buyers and plans to finish a strategic evaluation by the end of May.

The $850 million in cash that AOL paid for San Francisco-based Bebo in May 2008 made it AOL's largest deal since it bought MapQuest for $1 billion in 2000 (not counting AOL's $106 billion purchase of Time Warner in 2001). At the time, AOL was still joined with Time Warner Inc., but it separated from the media conglomerate late last year.

Since spinning off from Time Warner, AOL has sold one property: affiliate marketing business Buy.at, which it sold in March to Digital Window Ltd. for an undisclosed price. Digital Window runs a network of affiliate marketing sites, which steer customers to e-commerce sites in exchange for a cut of sales.

AOL, a pioneer in the dial-up Internet business during the '90s, has been trying to streamline and concentrate on rebuilding itself as a content and advertising business. It runs dozens of Web sites, including popular tech blog Engadget and personal finance site WalletPop.

Clayton Moran, an analyst at The Benchmark Co., said the price AOL paid for Bebo was questioned from the start.

"It made a lot of industry watchers scratch their heads," Moran said. "At this point they probably would admit they overpaid for it and now they're just cleaning it up."

He said that if AOL does sell Bebo, it would likely fetch a fraction of its original purchase price.

Shares of New York-based AOL rose 25 cents, or 1 percent, to close Tuesday at $26.39.