Besides the drubbing Groupon has taken lately, few have withstood more blows from the media than AOL (as of this writing) and its hoped-for field of greens known as Patch.
Others have reported insiders calculating the losses for this year, less revenues, will be around $130 million. Some see that as an investment in the future (AOL) others see it as a big fat waste of money (Insider). Many happy advertisers on Patch disagree.
But no matter how you see the end game — flames or fortune — the hyperlocal sausage is getting made before our eyes and it’s not always pretty, though occasionally it’s entertaining and sometimes surprisingly compelling.
After the latest spate of not-great “news” (from AOL possibly tying up with Yahoo to reports of Patch editors being asked to source sales leads), I thought maybe it’s time to tap the source for opinions rather than just refracted information and rumors.
I queried Warren Webster, president of Patch, trying to penetrate the PR pros and get at what’s really going on. A Q&A with him follows below. But I’ve also spoken to Patch editors, going for a view from the bottom up. I’ve talked in the recent past to Brian Farnham, Patch’s editor in chief, and I’ve consumed a good deal of commentary from bloggers ranging from those with a passing interest to those whose lives seem devoted to mowing Patches.
The upshot? There’s no simple answer to the question of what’s going on with AOL’s giant bet (financially as well as symbolically). But a few things are fairly clear to these eyes:
Patch management is constantly re-evaluating the tactics of fulfilling their model. But the overall strategy of building big and leveraging “local” to drive revenue from new sources to push traffic upward to AOL advertising and content — that seems intact.
The money tree may be losing its leaves. According to reports, management appears to be pulling back at least on freelancer budgets, from a couple thousand a month for large Patches down to possibly nothing (I was told by one insider) next year. UPDATE: A Patch spokesperson said this is not the case. Patch’s Janine Iamunno said with “100 percent” certainty the company is not moving toward $0 spend on freelancers.
Awareness is lacking outside of the industry. Ask people in a Patch town if they know about Patch. Chances may be good as bad that they’ll know what it is (in my unscientific study). For my wife, AOL.com is the default first stop when she flips open her laptop. And what’s right there square in the middle? A promotion for our local Patch. Perfect. Needless to say, among this group, awareness is high. But not everyone starts with AOL and that can be a continuing thorn in the company’s side. I think it’s an overlooked challenge, and one that could be lessened by properly placed campaigns. Furthermore, this is actually good news for the company: Patch still has a large untapped market ahead.
There are no plans to sell off community sites, period. The company is very committed to Patch as a strategic investment.
~ Warren Webster, President
Patch represents an achievement difficult to tally. Patch may stand the best chance of filling in where newspapers have fallen away, but it’s difficult to assess by its remarkable infrastructure alone — perhaps like touching an elephant’s tail in a dark room and thinking it’s a kitten. And the jury is still out on the viability of creating a meaningful sub-network where people across the country can find predictability in local information.
I put a few questions to Warren Webster directly, trying as I might to get at the root of what’s going on inside the swirling world of AOL’s local bet, especially in light of a Tim Armstrong (AOL CEO; essentially, Warren’s boss) comment at the Goldman Sachs conference last week indicating that Patch could hit the chopping block at some point. He played along with expected positive speak but also plenty of informed offensive pushback, in a rare instance of poking back at critics. There’s also avoidance, but his words might actually be revealing more for what is left out — wade through some of the boilerplate with me to some insights from Webster:
Did Tim Armstrong (AOL CEO) suggest that underperforming community sites could be sold off? If not, what did he mean?
No. There are no plans to sell off community sites, period. The company is very committed to Patch as a strategic investment.
People leave companies all the time, but generally not when they are happy. Patch has lost some senior folks on the sales side. Why?
As we’ve evolved our sales team, we’ve made some strategic changes in how we run the revenue side of our business. We’re confident in the leadership that we now have in place there. I don’t see these changes as anything other than moving forward as a company and building out the team that we want to run a very large, distributed sales force.
There are many measures of success — standing up over 800 sites in less than two years; hiring about a thousand people; launching your own deals service. However if there is no evidence of profitability then you’ve failed. How much time is needed before Patch at large can be “profitable” or “cost neutral”?
Right off the bat, let me push back on this: “if there is no evidence of profitability then you’ve failed.” We are succeeding on a number of levels, and our users and advertising clients remind us of that every day. Building something as ambitious and important to communities as Patch is a long-term investment. We’ve said that since day one.
We continue to be amazed at how quickly the sites have been adopted in their communities, both by residents and businesses. Our business plan is right on track, and while we obviously can’t comment on timeline, we couldn’t be happier about the track we’re on. We strategically and purposefully started phase 1 by building a scalable platform, investing in journalists, investing in communities, and are very happy with the progress on phase 2, which is providing the best, most effective platform for businesses in local communities. We’ve shipped our latest product, we’re getting great feedback from advertisers (locally, regionally, and nationally), and we’re continuing to create innovative products to support our mission.
How many communities are planning to build? You’re at 840 now?
We’re in about 863 communities now, and we’ve said we’ll be in close to 1,000 by year’s end.
Building something as ambitious and important to communities as Patch is a long-term investment.
Also, given the strategic value Patch might offer other properties does it even need to stand on its own financially?
The fact that anyone is even asking that question highlights the value we’ve created in Patch! We definitely expect Patch to stand on its own financially and be an enormously valuable company, but you bring up a great point — there is even more value when you look at it in the bigger context of AOL. Patch is an extremely valuable asset given our success to date – and we plan to make it even more valuable.
Almost everything comes back to traffic, doesn’t it? So what more can Patch execs and editors do to drive up numbers?
According to publicly available comScore numbers, Patch traffic has increased 250% since the beginning of 2011. In July comScore showed us at nearly 9M monthly UVs, in August we grew to over 10M UVs. And of course, comScore is more geared toward national/international sites – our internal numbers are significantly higher.
Ultimately we look at traffic success not in aggregate but on an individual site level, and we’re very happy that our newer sites are growing at the same or greater pace than our older, more established sites. Really, it’s all about how many people in a town use Patch and that’s what we focus on.
I realize not all unique visitors and pageviews carry the same weight. For instance one journalist recently compared your numbers to those of The Huffington Post (referring to the human-power it takes to drive said traffic) which to my mind misses the point. Huffington Post has a lot of empty calories under those links — non-targeted, etc. Patch it would seem could make the argument that each unique or PV is worth more than a PV at HuffPo. Is there any truth there?
It’s true that we look at UVs differently. Huffington Post is extraordinarily successful building an audience from anywhere and everywhere, which is great. We look at the percentage of the population of each of our communities that visit the sites regularly and what they do when they’re there. These visitors are much more valuable to Patch than any national or untargeted traffic. So while aggregate numbers may be smaller, we’re fine with that, because our individual site numbers are so good. That’s what matters to us. Comparing the two sites is comparing apples to oranges.
Is Patch merging any editorial operations with The Huffington Post local sites?
We work very closely together, we share content, we collaborate on larger regional stories, and have a very symbiotic and productive relationship. We don’t manage them together, but we are close partners. [Which is neither a yes nor a no.]
I don’t suppose you’ll want to comment on a report suggesting Patch sales is looking to spread revenue around several cities for appearance purposes?
This is not an accurate view of what we do. Part of the reason we built Patch at a large scale was because we talked to many businesses, ranging from main street SMBs to large blue-chip advertisers. All of them, without exception, like the idea of piecing together the audiences that are most important to them. Patch is designed for that. If campaigns run across multiple Patches, that’s why. It’s a huge part of the value of Patch.
Patch president Warren Webster will be among the top executives who will be gathering in New York on October 25th and 26th at the Street Fight Summit to talk about the future of sustainable hyperlocal business models. Click here to reserve your ticket today!
Rick Robinson’s Turf Talk column appears every Wednesday on Street Fight.