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Monday, February 7, 2011

More on the HuffPo acquisition

Further to my thoughts on AOL acquiring the Huffington Post, Daily Beast contributor Randall Lane explores the deal's slightly odd terms:
AOL, even after its spinoff from Time Warner in 2009, remains a public company. So why did it pay almost completely in cash? (Just $15 million of the [$315 million] transaction is in stock.) Because while AOL clearly believes fully in The Huffington Post, Arianna and her squad just as clearly don't believe fully in AOL.
"AOL stock? Uh, no, we'd prefer compensation that will hold its value in five years, thanks."

Fellow Beast contributor Dan Lyons (aka Fake Steve Jobs) thinks the deal is "a slow-motion train wreck and will end in disaster." Not all his arguments are convincing but enough of them ring true that I'd be worried if I were an AOL shareholder.

Lyons portrays the match as salespeople meeting journalists. AOL CEO Tim Armstrong "is a sales guy," implicitly making HuffPo the journalists. One problem with thus romanticizing HuffPo's work is that HuffPo was routinely criticized for being a story aggregator, like Google News, rather than a content creator, like the New York Times. Story aggregation is to be strictly circumscribed at AOL: the leaked "AOL Way" slides (see my earlier entry) make clear that AOL is determined to keep all clicks in-house.

(Nothing wrong with story aggregators, by the way: I'm one myself, after all. However, I'm not charging you to read this.)

Lyons speculates -- whether his tongue is in his cheek, I don't know -- that the acquisition is part of a long-term strategy to consolidate outlets for ad dollars:
If the problem is that we have too many organizations chasing after the same ad dollars, why not roll everyone up and give advertisers fewer choices? Then we can bump the ad rates up. It worked in broadcast TV, when we had three big networks and they operated an oligopoly.
(Speaking of consolidation, the Daily Beast just merged with old-school newsmagazine Newsweek.)

The best tidbit to come out of Lyons' article is the probable reason HuffPo was available for acquisition:
Huffington and her partner Ken Lerer had raised $37 million in venture funding, much of it from Softbank Capital. In June 2009, as Softbank grew impatient for a return, the VC fund had installed Eric Hippeau, one of its partners, as CEO of Huffington Post. In our conversations, Hippeau talked about how he was determined to build a “strong and independent” business—which in the world of tech and media is code for, “We’re for sale.”
Hippeau, Lyons reports, is not joining AOL as part of the deal. 'Nuff said.

Lyons quotes Gawker's Nick Denton, pithily summing things up:
“AOL has gathered so many of our rivals— Huffington Post, Engadget, Techcrunch—in one place. The question: Is this a fearsome Internet conglomerate or simply a roach motel for once lively websites?”
Lane's and Lyons' pieces only strengthen my conviction that AOL just threw a pile of money down the drain -- again.

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