Posted on | December 16, 2013 | 27 Comments
— Ali A. Akbar (@ali) December 16, 2013
Do you remember in February 2011 when AOL bought the Huffington Post for $315 million? Did that price tag come to mind in August when Amazon’s Jeff Bezos bought the Washington Post for $250 million?
Do these numbers even make sense?
Huffington Post = $315 million
Washington Post = $250 million
Excuse me for suspecting that the brand Bezos bought was far more valuable than the brand AOL’s Tim Armstrong bought, and excuse me also for thinking Armstrong is one of the most clueless executives in online media.
Maybe you don’t care about this little media industry story, but it’s fascinating how the failure happened, and how Armstrong was permitted to throw away money on this pet project:
Mr. Armstrong had a sentimental, and some would say debilitating, attachment to Patch. He helped create it in 2007 while a senior executive at Google. When he got the top job at AOL in 2009, he persuaded the company to buy it. Patch then proceeded to churn through leadership, business models and write-downs on the way to its reduced state.
The board of AOL, handpicked by Mr. Armstrong, authorized him to invest $50 million on the idea in 2010 and after that, it became a black hole for cash. By the end, it had cost an estimated $300 million. (AOL said the figure was more like $200 million.)
Well, $200 million, $300 million, what’s the difference? Either way, it was a lot of cash: At least $50 million a year for four years. And for a dollar amount similar to what Tim Armstrong pissed away on this experimental network of hyper-local news sites, he could have bought the Washington Post, but Patch was Armstrong’s beloved brainchild:
Mr. Armstrong is nothing if not a true believer. Even though Patch is being dismantled or perhaps sold off to various partners, he still believes that he had the right product in the right space, and that he just ran out of runway.
That runway ended because of a schedule he set. In May 2012, he promised restive investors on an earnings call that he would make Patch profitable by the end of 2013. That page of the calendar arrives this month while profitability remains on a far shore, so Mr. Armstrong is reluctantly throwing in the towel.
The theory was that Patch would use a single news person and a single advertising person, at least initially, to create a digital maypole in hundreds of communities at a cost of about $100,000 annually per site. . . .
The execution risk was large — Patch was all moving parts, many undermanaged. At its peak, some 900 sites employed 1,400 people.
This is from a 2011 interview with Armstrong:
Patch was something I started on a personal level that I funded and co-founded with another person who’s at AOL with me now, Jon Brod. Basically, Patch was formed because in my community [of Riverside, Conn.], we had a real lack in information. As the economy got worse, there was less and less journalism in my town and there was a lot of missing information online. So Patch started as a personal project to see if I could help solve the issues in my town. As we got going and realized it was broader and broader, we decided to ramp up and do a much bigger project. I think Patch is in about 800 communities across the U.S. It will go up to 1,000 communities this year. We’ve hired about 1,000 journalists. I brought Patch into AOL when I came to AOL.
So, what began as “a personal project to see if I could help solve the issues in my town” turned into a sucking chest wound that bled AOL’s bottom line to the tune of at least $200 million. By the way, Armstrong’s Patch co-founder recently left AOL:
Brod is one of the last AOL executives with longstanding ties to Armstrong. He was one of Patch’s co-founders, and joined AOL after Armstrong, an early Patch investor, bought the company in June 2009.
After that, he held a variety of roles: He first ran AOL Ventures, and at one point was in charge of “integrating” Arianna Huffington and her operation after AOL bought her company. Armstrong moved him back to Patch in 2011.
Also last week, it was reported that AOL editor in chief Cyndi Stivers, who was only hired in May, is leaving the company.
Rats, sinking ship, some assembly required.
He paid $300M for the Huffington Post. He lost $200-$300M on Patch. Pls explain how he's still employed. http://t.co/jgEYMB0p7e
— John Podhoretz (@jpodhoretz) December 16, 2013
At some point, AOL’s stockholders will either wise up and get a new CEO, or else they’ll sell off, but however it shakes out, Tim Armstrong will not be allowed to continue failing this way.