Patch and Profitability

The best or biggest deal, assertion, investment or other strategy this week.

Who: Patch

What: Spends $150k per year to run each hyperlocal site

Deep-ish into a story about AOL’s growth this week. The Wall Street Journal tucked this tasty nugget of information: 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. 

This estimate begs the obvious question of whether AOL will — or even can — make a profit from the hyperlocal network. A recent Street Fight post by Alex Salkever on the advantages of mom-and-pop hyperlocals have suggests probably not. Using West Seattle Blog as a successful example, he estimated that ad revenues for the site total about $7,500 a month, or $90,000 annually. Enough to provide a fine living for a married couple in Washington State. Sure. Enough to power a publicly traded online company? Perhaps not.

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  1. August 19, 2011

    It’s too early, I think, to draw firm conclusions about whether Patch’s business model will work with site costs being as high as they are.  Most Patches haven’t been operating for even a year.  If Patch can adopt more of the Huffington Post editorial style, including adding more pages to increase ad inventory, maybe Patch can, in a couple of years, generate enough ad revenue to cover operating costs.  It looks to me that’s exactly what Patch is doing — no surprise since Arianna Huffington is the ultimate boss there.

    1. August 22, 2011

      I agree that this is too early to call either way.

      However, AOL may not have the time to get to the finish line with those kinds of costs. In hindsight it may have been better to run a smaller number of sites with more focus on quality and revenue. Of course these are easy things to say in hindsight from the sideline.

      The other issue is that Patch is really trying to connect local ad dollars to local content. That game is less about pageviews and remnant inventory and more about reserved ad space and owning relationships with local SMB’s. That is a very different model than Huff Po.

      1. Scott Brodbeck
        August 27, 2011

        Right. It would take 15,000,000 page views per patch at $10 CPM to break even at $150,000 per Patch. I’m not saying that’s impossible for a hyperlocal, but it would basically mean that each and every Patch site would need to be busier than the WSBs and Baristanets of the world. That doesn’t seem realistic.

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Street Fight Daily: 08.19.11