Peter Kafka

Recent Posts by Peter Kafka

AOL + Huffington Post Won't Go to 11. But It Does Make Sense.

There are lots of Web M&As that don’t make much sense. But after you get past the “OMG!!!!!” novelty of AOL’s $315 million Huffington Post buy, this one has a straightforward logic to it: Old, big, slow company buys new, small fast company, hopes some of the zippy mojo rubs off.

Steve Case is right to point out that AOL CEO Tim Armstrong’s “one plus one equals eleven” logic didn’t pan out during the first boom, when Case was running AOL and engineered the disastrous Time Warner deal.

But here, at least, both companies are trying to do the same thing: Make a lot of Web stuff at a low price, and sell ads against it.

So maybe AOL + HuffPo won’t equal 11. And maybe 10x Huffington Post’s reported 2010 revenue is a very pre-Lehman multiple. But the broad strokes here make sense to me:

AOL is pushing its workers very hard to make more content it can sell. HuffPo is a content-making machine:

Huffington Post still has the reputation as a left-leaning political site written by Arianna Huffington’s celebrity pals. In reality, it is most concerned with attracting eyeballs anyway it can. Sometimes it’s with well-regarded investigative journalism, and much more often it’s via very aggressive, very clever aggregation. And sometimes it’s by simply paying very, very close attention to what Google wants, which leads to stories like “What Time Does The Super Bowl Start?

However they’ve done it, it’s worked–much more efficiently than AOL, which is headed in that direction as well. AOL reaches about 112 million people in the U.S. every month with a staff of 5,000. The Huffington Post, which employed about 200 people prior to the deal, gets to about 26 million.*

AOL can start selling this stuff immediately:

HuffPo reportedly generated around $30 million in revenue last year, but that was done using a relatively small staff that sales chief Greg Coleman had just started building. AOL’s much bigger sales group, which has just about finished its lengthy reorg, should be able to boost that performance immediately.

AOL can afford it:

Tim Armstrong’s company ended 2010 with $725 million in cash, much of which it generated by selling off old assets. This seems like a relatively easy check to write and one that shouldn’t involve a lot of overlapping staff–AOL figures it will save $20 million annually in cost overlaps, but that it will spend about $20 million this year on restructuring charges. HuffPo is about four percent of AOL’s size, and several of its top executives are already stepping aside. (This is the second time in two years that sales boss Greg Coleman has been moved out of a job by Tim Armstrong.) The biggest risk here will be in the way that Huffington, who is now editor in chief for all of AOL’s edit staff, gets along with her new employees. On the other hand, morale is low enough at many AOL sites that it will be hard to make things worse.

AOL Gets a Really Big Brand:

There’s some downside risk to attaching Arianna Huffington’s name to a big, mainstream media brand, as her politics and/or persona might scare off some readers and/or advertisers. But two years after Armstrong arrived from Google, AOL still doesn’t have a definable identity, other than “the Web site your parents might still pay for even though there’s no reason to do so.” Being known as “the guys who own Huffington Post” is infinitely better than that.

HuffPo’s “pro” list is much shorter, but only because there’s not much to think about for them: Huffington, co-founder Kenneth Lerer and their backers get a nice return on the five years and $37 million they put into the company. And those who stay on get to leverage the benefits of a much larger acquirer–access to more eyballs and more advertisers. Easy enough to understand.


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*(Something about these numbers, culled from AOL’s and Huffington Post’s own releases, doesn’t add up, as AOL now says the combined company will have 117 million uniques. But it’s close enough for now.)


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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus