It was great to see AOL out there again earlier this week using its cash to buy stuff.
Rich companies like AOL ought to be buying stuff these days, because otherwise the cash just sits on the balance sheet earning nothing.
And in AOL’s case, the company is in the midst of strategic restructuring–selling stuff it doesn’t need and buying stuff it does need–so the acquisitions suggest that there’s a plan in there somewhere.
And we’re sure there is. We just wish we understood it better.
Here’s how CEO Tim Armstrong explained The Plan to Om Malik earlier this week:
“Our strategy is to invest in as many brands as we can: brands that cut across devices and distribution channels,” he said. From TechCrunch to Engadget to Moviefone, AOL wants to establish brand beachheads on the Internet, Armstrong added.
In addition to brands, he said that AOL also wants to establish platforms that can be used by other content companies. The three platforms he has in mind: a communication platform, an advertising platform and a content platform.
OK, so boil that down and you get what Om said you get: AOL’s strategy is “brands and platforms.”
Unfortunately, that’s pretty vague. And it pretty much describes the whole Internet industry. So what, exactly, is AOL’s strategy again?
Well, before you can have an intelligent discussion about where AOL is headed, it helps to remember where AOL is.
Right now, AOL is basically in two businesses, which contribute approximately the same amount of revenue:
- Dial-up Internet access (~$1 billion of annual revenue)
- Advertising: display and search on AOL and third-party properties (~$1.2 billion of annual revenue)
The advertising business is the one that matters now, although we’re holding out hope that AOL can find something to sell the remaining dial-up subs to persuade them to stick around for a while. (Memberships, content subscriptions, coupons, you name it–something).
The ~$1.2 billion advertising business breaks down as follows:
- Display ads on AOL content: ~$500 million
- Search ads on AOL content: ~$400 million
- Ad network: $300 million
Of these businesses, sources have told us, the vast majority of AOL’s operating profit before interest and taxes (~$600 million) comes from the dying subscription business and the search business. The dying subscription business will probably continue to die, and the search business will continue to shrink as AOL’s dial-up subscribers bleed off.
So that leaves the AOL content and ad-network display business.
So we understand the TechCrunch acquisition–more content. And we understand the Patch investments–more content. And we understand the “Seed” freelance-blogging concept (although we have heard alarmingly little about it of late)–more content.We still have questions on the content side, namely will AOL continue to invest in premium content (a la Engadget, Daily Finance, TechCrunch, etc.) or will it instead push cheaper SEO-driven content. The TechCrunch acquisition makes it see like “premium” is back in The Plan, but the recent departures of execs like Marty Moe make it seem like AOL’s still feeling schizophrenic about this. (See “AOL’s Content Strategy Is Still A Mess“)
And we don’t really understand what AOL’s up to on the “platform” side. What will happen to AIM? AOL Mail? Will these still spray traffic at AOL content? If so, does AOL plan to rejuvenate both AIM and Mail to compete with GMail, Gchat, Google Voice, etc, as well as the dozens of competing products out there.
Bottom line, we like that AOL’s back out there. AOL is certainly not the only old Internet company that doesn’t know what it is (Yahoo hasn’t a clue, and even Google is beginning to look lost in the wilderness). As former AOL CEO Steve Case put it, moreover, it’s great to see the company playing offence again.
But we think AOL management still needs to spell its strategy out more clearly–to Wall Street, to AOLers, and perhaps even to itself.
“Brands and platforms” sounds fine, but ultimately it doesn’t mean much. And you can’t run a tight ship when you can’t tell the passengers or crew where the ship is going.
See Also: Meet The Googlers Running AOL