It’s the Beginning of the End for AOL’s Patch

Company announced plans to unload one-third of the sites

   

Back in January, AOL (AOL) CEO Tim Armstrong vowed that its Patch hyper-local news sites would be profitable by then end of the year … and I wrote that the odds of that happening were daunting.

Turns out, I was right.

Speaking against the backdrop of a better-than-expected quarterly earnings report yesterday, Armstrong announced that AOL was going to sell, close or find partners for around one-third of the 900 Patch sites that aren’t likely to make money any time soon.

As he explained: ”We have decreased the cost structure of Patch roughly 25% already this year, and we would expect to remove more cost out of Patch going forward.”

Exactly what that means isn’t clear, but Armstrong did tell an analyst that the cost for operating a Patch site was “much, much lower” than its highest point of $150,000 two years ago, as Forbes reported.

That’s not surprising, of course. There have been frequent reports about layoffs at Patch over the past few months, while morale seems to  keep dropping if anonymous postings on media sites such as Romenseko are to be believed.

Armstrong seems to think that “significant offline media companies” (read: newspapers) will be interested in partnering with Patch sites in their community. I think he’s delusional. Many newspapers have their hands full with their digital properties already and are not going to be too keen on acquiring a money-losing enterprise.

Plus, Patch was fatally flawed from the start — something Armstrong has been unwilling or unable to  see, probably because he helped found the company, which AOL acquired in 2009.

See, AOL rolled out Patch nationally without figuring how to make money; it just dove in and started providing what the industry calls hyper-local news. That would be like McDonald’s (MCD) selling a new burger at all restaurants without first seeing if customers liked it.

With that roll-out, the company also overestimated the interest in hyper-local content. Even if people say they want such coverage, their actions don’t seem to agree — something I mentioned recently in the wake of Google’s (GOOG) new hyper-local service.

And they especially don’t want local news covered in a dull, amateur way. But from what I’ve seen, that’s what the bulk of it is. There are also scads of poorly composed pictures, along with unimpressive headlines.

To top it off, the audience for this type of content is small by its very nature, and thus too small to interest many local businesses. A car dealer, for instance, doesn’t want to sell vehicles just to people in their particular town. The same holds for owners of most restaurants and retail stores.

It’s no wonder that many hyper-local sites have been dismal failures.

Armstrong started Patch because he said that he had trouble finding out what was going on in the town where he lived. I’m guessing he didn’t try very hard. Either way, finding out what is going on in one’s community has never been easier  – even without Patch. Many police departments provide news about crime directly to members of their communities via text message or email, and the same holds for local governments and school districts.

Sorry, Patch.

Since my earlier Patch prediction came true, I am going to make three more.

  1. Patch will be profitable this year as Armstrong promised.
  2. Most of the troubled sites aren’t going to find a partner and will shutter permanently.
  3. AOL will close more than 300.

We won’t find out if I’m right until next year, of course. So until then, just sit back and watch AOL try to patch up its unsuccessful foray into hyper-local news.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/aol-backs-away-from-patch/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.