The Future for AOL: Content
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
AOL has fallen a long way since it had over thirty million paying customers and a stock valuation over two hundred billion dollars. Since then AOL (NYSE: AOL) has been spun off from Time Warner and gone public again on the New York Stock Exchange under the ticker AOL. The company has lost roughly 80% of its traditional customer base from its high of 34 million. However despite their impressive fall from power AOL has the potential to re-launch itself. Not as an Internet Service Provider or a walled garden software package that my grandparents refuse to stop paying for because they think AOL is the internet, but as a content company.
AOL has already taken some steps in the right direction; they have ended several legacy services in the past few years and laid off over 40% of the companies staff. AOL did hire at least one person during this period as they hired a new CEO, Tim Armstrong formally of Google. Under Armstrong AOL has made acquisitions that will help it down the path toward becoming a content creator. They acquired the Huffington Post, TechCrunch, WebBlogs, Inc. as well as numerous other web based services for the distribution of videos or content. In 2007 alone AOL purchased three advertising companies (Quigo, Tacado and AdTech these acquisitions happened before Armstrong as did the Weblogs Inc acquisition) which will help them monetized the original content they produce. AOL now owns several popular news websites as well as producing original content for aol.com.
These are all small steps for AOL, but they are all moving them in the right direction. Unifying all of these news/content companies under one advertising and monoitization platform will allow AOL to compete with other online content companies. In fact AOL will have an advantage over some content companies because AOL does not have to worry about cannibalizing legacy content channels that still make up a large segment of other companies’ revenue, as they would if they had Newspaper or TV distribution networks. AOL will additionally be able to hire quality employees who used to work in ‘traditional’ journalism and who are now looking for work as newspapers have laid off staff.
AOL can compete against content providers like Yahoo News, AP and Reuters because they are collecting niche news sites and unifying them. AOL is not trying to become a mainstream news companies; these are already highly competitive and well established. They now own several prominent Tech news sites (TechCrunch & Engadget) and the most prominent left leaning news source on the internet, The Huffington Post. This is an excellent start; they are aggregating non-traditional news sources and building an online news network.
Yahoo, Microsoft (NASDAQ: MSFT) and AOL have entered into a strategic ad alliance that will have them selling their ads on each other’s sites in an attempt to make their ad platforms more competitive with Google’s ad service. This eliminates some of AOL’s potential competitors while hopefully placing higher quality ads on their sites.
AOL recently sold over a billion dollars’ worth of patents to Microsoft as they don’t have any need for them and could use the cash to help tide them over while they build up their content arsenal. AOL’s stock is trading close to a fifty two week high largely because of the recent patent sale; this will also buy AOL some time to make their shift, in fact AOL’s high stock price combined with extremely low earnings results in a P/E ratio that’s through the roof (roughly 182).
In addition to these wonky stock figures, AOL has made some acquisitions of late that do not move it toward the content based company I would like to see; they acquired a mobile photo sharing app (hipster) and the social profile site about.me. There have also been some high profile departures from AOL including the founders of Engadget and the founder of TechCrunch. Rumors abound at the time of their departures about tension between these founders and Arrianna Huffington, who was put in charge of editorial content across all AOL properties; Huffington’s role has since been restricted to The Huffington Post.
It is clear that AOL has not quite seen the vision of an online content company that I have seen for them, and at their current stock price they are overpriced, however their stock price will dip as they make the transition and as a content provider they will be a solid company. AOL has enough services and assets that they could sell off (the recent patent sale being an example) which would allow them to raise the funds needed to continue to acquire established niche news sites, monetize across these sites through ads or subscriptions and stay relevant as a web 2.0 content company.
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