Back to the Future: AOL Goes Local With Two Acquisitions (Including CEO's Company)
Each acquisition–which focuses on hyperlocal community news (Patch) and events (Going)–is small, about $10 million.
Ironically, local has previously been a big arena for AOL, which launched its Digital City unit with great fanfare more than a decade ago. AOL still runs Digital City, as well as its CityGuide listing offering.
But, in a move that will surely be scrutinized, Patch is a company whose principal investor has been AOL’s new CEO Tim Armstrong. AOL declined to say how much he had invested in the company, but sources said it was less than $5 million.
Armstrong addressed the issue in an internal memo to staff about the deal, noting he would forgo any profits from the AOL transaction for Patch and get back the seed money he put into the start-up in the form of AOL shares:
“On a personal note, I was an early investor in Patch and committed significant dollars to the vision of improving local communities with deeper online information, accountability through journalism, and a platform for communicating. In discussing our local strategy, AOL and Time Warner looked at Patch as a possible acquisition and I recused myself from that process. At the Time Warner negotiated acquisition price, I was in a position to earn a return on my investment in Patch. However, I have decided to forgo any profit from my seed investment in Patch and I have asked to receive just my seed capital in AOL shares once we separate from Time Warner.”
The New York-based Patch is a platform that does deeply localized coverage of communities about a range of topics, from announcements to news to events to obituaries. It is aimed at competing with local newspapers and other media.
In another interesting twist and blast from the past, Boston-based Going was funded–its last investment was $5 million in mid-2007–by two Web 1.0 portal execs, George Bell of Excite and Bob Davis of Lycos.
Both are now venture capitalists–Bell at General Catalyst Partners and Davis an Highand Capital Partners.
Going, which was originally called HeyLetsGo.com, connects its users with events and each other in a variety of big cities, such as San Francisco, Boston, Chicago and New York.
The focus on local will round out Armstrong’s new push for innovation at AOL, the final piece of his ongoing 100-day evaluation of the much-beleaguered company.
Armstrong has been busy in that time in making massive changes to the structure of AOL, sweeping aside its current set-up almost completely as it prepares for a spinoff from Time Warner (TWX).
That spinoff was announced recently and will result in AOL becoming a standalone company.
AOL’s new business strategy under Armstrong includes keeping its longtime access business, which many thought would be sold off, and putting many of the companies it has recently acquired–including its pricey Bebo social-networking site–in a separate ventures unit, which will try to attract outside investment.
The strategy will focus AOL on several key areas, including access, media/content, “scaled” advertising and communications, and now, local.
Local is also a big focus for players like Yahoo (YHOO) and Microsoft (MSFT) again. Yahoo CEO Carol Bartz specifically mentioned adding more community news, especially about local sports, to its offerings, in an onstage interview two weeks ago with me at the seventh D: All Things Digital conference.
Here’s the internal memo and press release about Patch and Going below:
Our strategy to win in the five areas we’ve discussed starts with innovation and passion. Of the five areas, Local remains the largest white space and offers us an ability to improve the lives of many consumers. It’s a space that’s prime for innovation and an area where we already have strength with a local network that reaches more than 54 million UVs a month and a valuable brand in mapping services, MapQuest.
Our vision isn’t just about optimizing what we have–it’s about overhauling how we approach this space, drawing on our legacy of connecting communities and our long history of organization through DMOZ. It’s about taking one of the most disaggregated experiences on the Web today and making it truly quick and easy for consumers to find the local information they need.
Today, we’re announcing two acquisitions that will enable us to better serve audiences by providing experiences that are highly focused on users’ own neighborhoods–Patch and Going.
Patch.com was built to provide local towns with a robust and interactive platform to publish news and information, with full-time journalists for each town covering government affairs, education issues, and community events. One of the AOLers in our All Hands meeting on May 29 asked what our plan is to help towns, like his, where the local newspaper has gone out of business. Patch is an acquisition that may eventually help that town. Under the leadership of co-founder and CEO Jon Brod, Patch has been able to launch five initial town sites since February and has just announced four additional communities. Moreover, Patch has already received over 230 user requests for “Patches” spanning 39 states and 12 countries.
The second acquisition is a small company located in Boston–Going. Going has developed a local events platform to discover and share information about things to do in a number of leading cities across the country. Under the leadership of CEO Evan Schumacher, Going has launched sites in 30 cities–including New York, Chicago, Los Angeles and Miami–and provides users with RSVP tools and advertisers with self-service event advertising.
On a personal note, I was an early investor in Patch and committed significant dollars to the vision of improving local communities with deeper online information, accountability through journalism, and a platform for communicating. In discussing our local strategy, AOL and Time Warner looked at Patch as a possible acquisition and I recused myself from that process. At the Time Warner negotiated acquisition price, I was in a position to earn a return on my investment in Patch. However, I have decided to forgo any profit from my seed investment in Patch and I have asked to receive just my seed capital in AOL shares once we separate from Time Warner.
Overall, I believe both Patch and Going will add strength and talent to our local efforts and give us an ability to have a unique and defendable local offering that helps people improve their lives. I’m excited that we’ve reached the stage where we can begin implementing in our five key strategy areas, and with today’s announcements we’re off to a great start in Local.
Please join me in welcoming the employees of Patch and Going to AOL and the future of AOL Local. –TA
AOL Acquires Two Local Services, Patch and Going
Acquisitions Add to AOL’s Leading Network of Local Services with a Community-Specific News and Information Platform and a Local Event Platform
NEW YORK, NY–June 11, 2009–AOL today announced two acquisitions in the local space: Patch Media Corporation, http://www.patch.com, a local news and information platform aimed at serving local towns and communities and Going, Inc., http://www.going.com, a local platform for people to discover and share information about things to do in a number of leading cities across the country. Both Patch and Going offer local experiences, content and self-service applications for consumers and advertisers.
“Local remains one of the most disaggregated experiences on the Web today–there’s a lot of information out there but simply no way for consumers to find it quickly and easily,” said Tim Armstrong, AOL’s Chairman and CEO. “It’s a space that’s prime for innovation and an area where AOL has a significant audience and a valuable mapping service in MapQuest. Going forward, local will be a core area of focus and investment for AOL. The acquisitions of Patch and Going will help us build out our local network further with excellent local services that enable people to stay better informed about what’s going on in their neighborhood.”
The acquisitions extend AOL’s network of local services, the largest online local network,* reaching more than 54 million total unique visitors per month.** Both acquisitions also leverage a consumer and marketplace trend toward greater consumption of news and information online.
A recent survey by the Pew Research Center for the People & the Press found that more people now say they get most of their news from online sources than from traditional newspapers (40% vs. 35%).***
In addition, local searches grew 58% in 2008 year over year, while overall searches climbed just 21%, according to research conducted by the Yellow Pages Association in March 2009.
Local advertising (online and offline) represents an approximately $103 billion market (approximately 39% of total U.S. ad spending), according to Borrell Associates in 2009.
Founded in December 2007 and headquartered in New York, Patch combines localized, professional journalism with community contribution and a platform that puts all town assets online – in effect, digitizing the community. Patch, which expects to be available in a dozen communities by the end of the year, currently has “Patches” in five communities with four more in development.
“We are excited to join the AOL family,” said Jon Brod, CEO of Patch. “AOL’s substantial network will help us extend the reach of Patch into more and more communities. And Patch, as part of AOL’s local strategy, will create new opportunities for AOL to delight consumers and provide marketers access to highly targeted and deeply engaged audiences.”
Launched in September 2006 and headquartered in Boston, Going is one of the leading local communities for 20-somethings looking for things to do in cities across the country. Going is available in 30 leading U.S. cities, including New York, Los Angeles, Chicago, Miami and Boston, with several more planned this year. Going also provides local promoters, event organizers and venues a fully automated, self-service RSVP, ticketing and advertising engine to maximize the attendance and value of their events.
“Going allows young people in leading cities to discover upcoming events, parties and new hot spots – and most importantly connect with others who share a similar lifestyle. By joining with AOL, we have the opportunity to greatly expand the reach of our platform to more cities both in the U.S. and around the world,” said Evan Schumacher, Going’s CEO.
“AOL has a legacy of connecting people to the content, community and services they care most about,” said Armstrong. “Patch and Going, combined with our existing network, will enable the company that got America online, to connect consumers around the globe to their communities online.”
* April 2009 U.S. comScore Media Metrix; Local Networks category is a custom built category by AOL.
** Custom AOL-defined Local Networks report, based on comScore U.S. Media Metrix Audience Duplication report (April 2009).
*** Pew Research Center for the People and the Press, “Internet Overtakes Newspapers as News Outlet,” December 2008.