AOL’s hyperlocal network Patch is struggling.
It was supposed to be a savior. AOL’s hyperlocal news venture Patch was created to fill the void left by the death of local newspapers around the country. Finding a dearth of online news in his Riverside, Connecticut hometown, Tim Armstrong co-founded Patch in 2007. Embedded editors would file local news and maintain neighborhood activity calendars; the local ad market was largely untapped, or so went the thinking…
…The math around Patch has always been tricky. In two years, it rapidly expanded to 863 sites, from Agoura Hills, California to Woonsocket, Rhode Island. Content is supplied by 1,000 professional journalists and some 14,000 bloggers. AOL has poured $160 million into the venture, despite paltry revenues. In 2011, it made just $20 million from Patch.
AOL likes to say that Patch losses aren’t really losses but instead necessary initial investments for a profitable longterm future.
But is there a longterm future in hyperlocal?
Bob Garfield, co-host of NPR’s On the Media, believes the answer is two-fold. There isn’t a market for independent hyperlocal sites, but there is one for a consolidated network of them, which is exactly what Patch is.
Simply, there’s too much audience fragmentation and downward pressure on advertising prices for the independent operator.
“Nobody, nobody, will have the critical mass to professionally and profitably deliver [hyperlocal] news,” he says in this interview (video, starting at 2:30) with Borrell Associates. “The future isn’t in hyperlocal, per se, as a stand alone operation. In my opinion, the answer will be in consolidation.”
Alex Salkever of Street Fight thinks Garfield has it wrong. While agreeing that the economies of scale won’t allow hyperlocal sites to exist on traditional online advertising, innovative new forms might do the trick.
“With Twitter and other real-time microblogging tools,” Salkever writes, “merchants can integrate hourly deals into the local blog spots in order to, say, take advantage of bad weather (BOGO hot cocoa at the local coffee shop, anyone?).”
This is very true and the hyperlocal site of the future will probably look very different (in both interface and delivery platform) than what we think of as traditional new sites. But I think Garfield’s final point still stands: that the future of hyperlocal may very well be consolidated national brands like Patch.
Salkever counters that mom and pop tech blogs with lean staffs and a whole lot of daring do punctured the tech coverage of the mainstream press to become some of the biggest players out there but that analogy is a little bit apples and robots.
People who follow tech are going to follow whoever’s producing the best news about it. There’s no geographic constraint on where that news is important or interesting. People following local high school sports, or town council meetings? Except for a very interesting few, they aren’t heading to other hyperlocal sites to see what’s new about a random town’s residential zoning issues.
So, Patch is wounded but it has built scale. Now we’ll see if it has the imagination to make it sustainable. There are, after all, upwards of a thousand journalists whose current jobs depend on it. — Michael
If you sell lemonade for $1 and it costs $800 to make it, that’s not a great business
Robert Peck, managing partner at Quasar Capital Advisors, a consultant to Internet and technology companies, speaking to the Wall Street Journal.
The Wall Street Journal reports that AOL is spending approximately $160 million a year on Patch, its hyperlocal news network.
Unfortunately, Patch’s revenue model is an ad-play and people just aren’t visiting these local sites in large enough numbers to make them attractive to advertisers. Ever hopeful, Tim Armstrong, AOL’s CEO, says the Patch network will eventually be profitable.
Via the WSJ:
AOL is spending about $160 million a year on Patch, which equates to about $150,000 to run each individual Patch site annually, according to an analyst’s estimate. AOL first focused on building traffic to Patch sites, and just recently started ramping up ad sales. Mr. Armstrong said in a call with investors last week that while revenues for Patch sites are small, they are growing quickly and on track to be profitable over time.
The larger issue is that after spending $315 million on the Huffington Post and over $90 million to buy Techcrunch, 5min Media and Thing Labs in order to transform itself into a content company, overall traffic growth across AOL properties is declining.
If we accept Business Insider’s diagnosis of Patch as a business failure, will anybody step forward to make the case that the sites are a journalistic success? I’ve yet to read that piece.
Local news is only expensive to publish if you have a big corporate structure to support and shareholder demands to meet. There are a handful of successful local online ventures that produce a ton of highly engaging, sought after, popular, memorable local news that do it at a fraction of the cost of the corporate entities.
Critics have raised concerns about the financial sustainability of AOL’s. Those in favor argue that it is different than large corporate structures and could flourish with enough writers. Others say readers just aren’t interested in niche communities, and, therefore, hyperlocal journalism doesn’t appeal to a broad enough audience.
Howard Owens, Batavian, Via Poynter.
We prefer Neighborhoodr.
The problem with Patch is that if you really look at the model, banner ads have been around for 15-20 years online, and it’s essentially an old product with a new twist on it from a local new standpoint.
If you look at LivingSocial or Groupon, that makes perfect sense in this day and age because it’s measurable and it’s identifiable in this day and age, it’s transparent. Patch is on the other end of that continuum. It’s brand advertising to companies that should not even consider that for dollar one, much less their last dollar.
At the MIT Enterprise Forum held last week at the New York Times Center, Michael Shapiro of TheAlternativePress.com lashed out at Aol’s hyperlocal effort, Patch, claiming the company lavishes money on new user acquisition to little effect.
During his presentation Shapiro aimed to put AOL’s Patch.com on the defensive, saying that the company recently announced that it had spent $50 million during 2010 and had only obtained 3 million unique views per month, raising questions about Patch.com’s revenue model and its viability. Shapiro noted that despite spending $50 million, AOL’s Patch.com had approximately the same readership per town as TheAlternativePress.com, though at 4.5 times the cost. “AOL’s Patch.com spent $1.39 per unique view in 2010. We spent about a quarter,” Shapiro noted, adding that “TheAlternativePress.com is the David to AOL’s Patch.com Goliath and we’re the only profitable hyperlocal here tonight. Our business model works.”
While Patch may be filling the void left as local papers close across the U.S., if true, their business model is charity for underemployed journalists, but far from sustainable.
h/t: Mark Briggs
The local space is hard, there are a lot of dead soldiers.