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The AOL logo seen on the company's headquarter - Source: Reuters
"I don't think it's a good day for people who type for a living," thus opined David Carr, the New York Times new media doyenne in his summary of yesterday's merger between America On Line (AOL) and the Huffington Post .
Some are calling this merger the beginning of a new phase in internet business. Others are saying it's a confirmation of the fact that making money from the web is almost impossible, unless you're selling porn or weight loss products.
Let me bring you up to speed. AOL is a sort of new media dinosaur, once the king of dial-up (remember that?) best known for a mergersaurus with Time Warner around the turn of the century. This was promoted as the best thing since sliced costs. New media would meet old media. Old media would add content. New media would garnish with smarts.
Well, that's how you destroy about a billion dollars of shareholder equity. AOL was uncoupled from Time Warner in 2009 and has been languishing ever since. Last year it generated a shameful $6.3 million profit on revenues of $1.8 billion.
In the meantime, Huffington Post has been growing from a plucky little liberal alternative to the conservative Drudge Report to solid web presence. It gets 25 million unique visitors a month, which is just a little less than the New York Times website. HuffPo - as it's know to its friends - famously doesn't pay people to write for it. They do so because... well, I don't know. Samuel Johnson once said "No man but a blockhead ever wrote, except for money." Some argue that the face of the business, Arianna Huffington, a glamour puss liberal who used to be a conservative persuades people to do this write-for-free thing. They get to go to her parties, etc.
HuffPo's profits are about $25 million a year, or one dollar per year per user. Hardly great.
Once the surprise abated, the backlash began. The Daily Beast, a website that recently teamed up with another another failing old media icon Newsweek, sampled the comments by HuffPo readers on the merger. Eighty percent of them thought the idea stank. They liked HuffPo's pluckiness, its smallness and independence. In the business press here, I'd say the naysayers are running at 60%.
AOL's CEO Tim Armstrong has decided to turn his company into a content business. But its business plan (leaked last week) is for increasing page views, and the numbers of stories. Writers will now have to do 10 stories a day. And they'll all have to be rippers. Translation? Paddle harder. Having written a little for the web, I know what gets hits. Recently I detailed how someone sent me $6500 worth of pot by courier. For a brief moment it was number one on TVNZ's website, until it was rightly supplanted by John Key outlining possible asset sales.
The point is that you don't get sent pot in the mail every day. Sigh.
There is one bright spot. By unifying the sites, AOL/HuffPo can hold advertisers to ransom: Come to us for the coverage we'll give you. Size counts. Perhaps that's what Tim Armstrong is banking on. Arianna Huffington isn't banking on anything, except the green. Most of the deal was done for cash, rather than shares. Clever woman. AOL shares today continue to trend down.
Read more of Tim Wilson's articles.
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