Patch’s days appear to be numbered — at least in its current form. That doesn’t mean that Patch will go away (immediately); what it probably means is that Patch will have to consolidate “bureaus” and change the way it staffs and operates to save money.
Yesterday SAI published a letter from a large, institutional shareholder of AOL (Starboard Value LP) to CEO Tim Armstrong. The letter criticizes AOL in detail about its strategy and discusses its multiple lines of business and how they’re under-performing according to Starboard. One of those is its Patch network.
The firm’s estimates and analysis argue that Patch’s 2011 revenues are $10-$20 million while its costs are roughly $160 million. Thus it may lose as much as $150 million this year. Starboard adds, “This level of losses in a business that already has reasonable scale is extremely troubling.”
AOL has been using its highly visible and popular Huffington Post property to drive traffic to Patch — in a somewhat forced way in my view.
An outright shuttering of Patch would be a major embarrassment for AOL. However major cost cutting would probably also seal its ultimate demise. Almost without a doubt Patch scaled too quickly without figuring out the model or the right advertising products for SMBs (it currently sells display and deals).
My view has always been that to succeed Patch would need to develop a “brand” and direct traffic. That hasn’t happened.
Patch probably should have picked a selection of markets around the country and experimented extensively with different content-creation methods and ad products. Instead AOL assumed that a quickly built, national network could be sustained by geotargeted display ads and organic page views. It probably also (incorrectly) assumed that scale would translate into brand equity.
At a bare minimum Patch is going to have to consolidate staffing into more “regional” editorial and sales groups and recruit more bloggers and free content creators. Alternatively it could start to aggregate content from multiple local sources. I thought this strategy was in part behind the Outside.in acquisition (which turned out to be mostly a talent acquisition).
Regardless of what AOL tries to do in the interim to cut costs at Patch, its major investors probably don’t have the stomach and patience for the “climb up the mountain” (call it 10 years) that would be required to make Patch into a brand and a genuine “hyper-local” success.
December 22nd, 2011 at 5:43 pm
Those patch numbers….ugh. That is ugly.
I don’t suppose anyone has created the cookie cutter approach to creating and recreating successful micro hyper local blogs. If so, I haven’t seen it. Have you?
I see a variety of successful hyper local blogs covering different towns, in cities, etc. in each case I’ve seen some hard working, clever, industrious person(s) have come up with a formula to keep generating content…..and have caught on with a loyal and active readership. Its a bit of magic, a bit of the right person in the right place at the right time.
OTOH, from the several I’ve seen, none of them are monstrous financial successes and/or have created a step by step guide that ensures that the initial success can be replicated elsewhere.
Do you have different data?
December 22nd, 2011 at 6:33 pm
There are a couple of people that have claimed to have “cracked the code” in a market or two but haven’t yet scaled nationally. There may be no way to create a “hyper-local network” as a practical matter.
December 22nd, 2011 at 10:07 pm
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December 23rd, 2011 at 3:00 pm
You are spot on Greg. AOL massively screwed this up by throwing up 850 sites in less than two years with absolutely ZERO marketing of Patch. They hired mostly inexperienced journalists fresh out of college who didn’t know how to cover a local government meeting, let alone run their own news and entertainment site.
That was the biggest flaw in their plan. If AOL would’ve launched 50 sites in 50 affluent markets, they’d be taking in $20 million and the costs of running that ship would be less than $10 million. Patch has sites making a profit, but they are the ones that have existed for the longest period of time and most have experienced journalists behind them.
The scale was just overzealous and unmanageable. What’s crazy about AOL Patch is how top heavy it is. They have a local editor who does all of the work, then an associate regional editor, a regional editor (80-100k) a regional publisher (100-150k), an assistant regional publisher (90-100k), a regional directory publisher (1ook), and I am missing some…. that’s just ridiculous.
December 23rd, 2011 at 3:57 pm
Blaine: I wasn’t aware of that cost structure. Scaling too fast is the most common mistake in the startup world. We’ll see the reorganization and cost-cutting soon if it hasn’t started already. It will be ashame if Patch ultimately fails because it will cast a shadow over the entire “hyper-local” concept. But there will also be some valuable lessons (are some valuable lessons) to be gleaned from its mistakes.
December 29th, 2011 at 12:20 am
Here is some cost cutting for you: I won’t name the area of the country or the genre of news covered, but within a single year coverage has looked like this:
Months 0-5: Near unlimited coverage of stories
Months 6-8: Coverage cut in half
Month: 9: Coverage has become very selective
Month 10-11: Many freelance projects cut. Coverage centralized and grouped according to so called “clusters”
Month 12: No freelance budget to be spoken of…If so, select towns have a total budget of around $100-200…that is lets say 2-5 stories not written by the site editor.
Picture this on a graph, straight downward. Seems similar to the trends spoken about. It is kind of predictable here.
How are local editors and regional editors affected by the steep downward curve in a direct result of the restructured budgeting??
January 13th, 2012 at 2:55 am
I can tell you that some of the local Metro Atlanta Patches share most of the same stories; which means do they really need that level of redundancy? Also, a lot of repetitive and unresearched articles that just aren’t news worthy after the 3rd or 5th go around.