7 Key Lessons From AOL’s Struggles With Patch

AOL’s Patch network of hyperlocal sites is in free-fall — nearly half of its 900 locations across the country are being shut down or partnered off and hundreds of millions of dollars have been lost. The perception from outside is that Patch is a catastrophic failure.

But don’t miss the learning in this.

The reality is that for nearly 100 years newspapers dominated media, but it was domination defined by complacency and stagnation. For newspapers, using color was a major innovation.

So why did a well-heeled usurper to newspapers find itself imploding last week? There are some critical lessons to be learned from Patch’s effort to fill the void of the failing newspaper industry amid consumers’ rapid shift to digital. Here are seven:

Lesson One: We need new leaders and innovators.
Give AOL’s CEO Tim Armstrong credit for trying to take advantage of a mammoth business opportunity. In a five-year period from 2007 to 2011, the newspaper industry lost more than $20 billion in revenue — shrinking to pre-1950 revenue levels.  While Armstrong’s venture may not be a success, the newspaper industry failure is far more monumental. He ultimately may lose $300 million, but the newspaper industry has essentially blown a $60-plus-billion near-monopoly industry.

Now, leading newspaper brands are being sold as playthings for the super rich and for the value of their real estate to sports team owners.

Armstrong took a swing and may have missed, but undoubtedly he has helped the learning process.

Lesson Two: Journalism matters.
The struggles at Patch may ultimately be linked to the lack of understanding of the value of content. Armstrong came out of a Google culture in which a there is a perception that there is a technology or user interface answer to most everything.

But in local journalism and information, the content is imperative. It is what attracts the reader. And consistent content valued by a community creates behavior. That behavior is monetizable as advertisers want and need to get their messages out to local readers.  This is the formula that built newspapers — local content that mattered. Patch missed this crucial variable in the formula.

A couple of months after GoLocal launched its first market in 2010, a former community newspaper editor who had been hired to oversee a cluster of Patches called me and said: “You got it right. We don’t. You break big stories and we write about knitting clubs.” (Also read “Just Another Chat with a Frustrated Patch Editor.”)

The lack of focus in the Patch model or even awareness of the importance of content is an insult to the consumer and is the root cause of the condition where Patch is today. Why would you go to a news web site that has no real news?

Lesson Three: Patch’s “Go where the rich people are” strategy was flawed.
Targeting primarily affluent suburban communities to build audiences may have seemed like a smart strategy from the outside. But the problem with this is that rich towns are boring — it is why people move there. Good schools, safe neighborhoods, and pretty parks are not the hot topics that most Americans seek to read about. Cities with corrupt mayors, great restaurants, vibrant colleges, and pro sports teams are far better subjects for news coverage.

Meanwhile, the local businesses that populate these suburban towns aren’t necessarily any more likely to advertise than those in less affluent communities. Pizza places and used car lots can’t sustain a local news business model. Affluent communities may be rich, but they aren’t rich with advertisers.

Lesson Four: Patch viciously violated economies of scale rules.
A few months ago I sat down with a top Patch executive and pointed out that in the two geographic areas where our markets overlap, they employ more than 80 journalists. I told him that if I had his workforce under our model we would file more FOIAs, break more corruption stories and produce more news coverage (in text and video) than any other news organization in New England. GoLocal’s content is regularly picked up the leading news organizations in the country — we break big stories.

Not only has Patch failed to produce much serious journalism, but the Patch model results in the repetition of innocuous, limited-interest content over and over — sometimes producing functionally the same story twice for adjacent towns.

When the digital media world primarily monetizes on a CPM structure and the going rate for local is $10, then there is a fundamental problem with Patch’s business model if an average story costs $50 on average to produce and only 50 readers read that story.

Lesson Five: Passion.
Pick up an Apple product or tune into The Newsroom on HBO; there is no question that those products were created by passionate people driven to excellence. Even today, read a copy The New York Times — it is written by a group of reporters who are driven to report better than anyone in the world.

When you look at a Patch site, there is a fundamental lack of passion evident in the product. A number of the Patches are staffed by competent local journalists, but make no mistake about it, the company culture oozes apathy.

Lesson Six: Going fast does not fix a flawed model.
While the Patch model has some Patches that by every measure are successful — they are the primary news source in their community, they spark community engagement and they are financially successful on their own — those are only a small fraction of the universe of Patches (a number that may be in the single digits as a percentage of the overall franchise). In 2010 and 2011, literally hundreds of Patches were launched across the country. Certainly, the smarter strategy might have been to get the vast majority of, say, the first 100 running and profitable before launching the following 800. After all, time was on Patch’s side as it was clear then (and is clearer now) that the newspaper industry was not going to innovate.

Lesson Seven: Innovate.
The Patch of 2009 and the Patch of 2013 are remarkably similar except that its reporters have far fewer resources and their workloads have doubled, tripled or worse. It’s hard to see in the Patch model how learning of success was transferred or identified mistakes were corrected across the country.

The opportunity to leverage hundreds of experiments seems to be one of the biggest lost opportunities. Patch launched no city-wide sites. Patch launched no all-digital statewide news structures. Why continue to roll out franchises in a fast food chain if the ones you’ve got aren’t working yet?

The competition to innovate and recreate news gathering, reporting, and monetizing is about to explode. Ultimately, Patch could still reinvent itself. But if it does not, there are plenty of lessons to be learned and applied to all of us driven to produce the next model of journalism.

(Read the Patch view “Here’s Ten Things We’re Doing RIGHT”)

Josh Fenton is the co-founder of GoLocal24, a digital news company focused on local media in midsized markets (not hyperlocal).