Yesterday, AOL announced a strategic shift that represents a big leap backward in time.Specifically, AOL climbed in the time-machine and jumped back to the 1990s, to a time when the big sites were called “portals” and most content on them was provided what was called an “anchor tenant”, which paid to be the primary source of content in a particular content channel.
In the 1990s, the portal-plus-anchor-tenants was an excellent business model: Creating content is expensive and laborious and annoying, so there’s no reason to do it if you don’t have to. Furthermore, there were 3-4 content sites in every vertical that had tons of cash to spend on portal “distribution,” and becoming the “anchor tenant” on AOL or Yahoo was a big leg up in getting a huge IPO valuation. So content companies were willing to pay an arm and a leg to become anchor tenants. In fact, by the late 1990s, portal distribution was so important that companies were paying tens of millions of dollars and giving up equity to be selected to power each AOL and Yahoo channel.
Well, life was grand then if you were a portal. There was no way to find anything on the Internet without starting at a portal, so the portals were basically the cable companies of the new medium.
But then the bubble burst and the IPO market collapsed, and all the anchor tenants either went bust or realised that they were paying vastly too much “rent” and renegotiated their portal deals. And then blogging, and search, and distributed advertising networks, and social media came along, and portals and portal distribution didn’t matter so much anymore. And the surviving portals, like Yahoo, began to build out their own content in their channels, so they could capture more eyeball time and, with it, more advertising revenue. And new “content” companies began to be built using new story-telling formats, aggregation, communities, and real-time reporting. And that brings us to where we are today.AOL still has a very powerful portal, powered primarily by its dying dial-up subscription business. As long as there are some AOL subscribers who still access the Internet via AOL’s dial-up connection and/or use AOL’s email, AOL’s portal will be a nice source of distribution. But given the vast number of other portal-like sites out there now, it’s hard to know how AOL will make AOL.com special enough to reverse the traffic lost from the declining subscription business and start growing again.
Meanwhile, of course, AOL has spent the last five years building up proprietary content brands like Engadget, WalletPop, and FanHouse. For a while, including after AOL’s new management arrived, these were said to be the future of the company. As recently as four months ago, in fact, AOL ponied up $25-$40 million to buy another proprietary content brand, TechCrunch, which seemed in keeping with this “proprietary brands and content” strategy.
But now, it seems, everything has changed.
By firing most of its FanHouse employees, licensing the brand, and outsourcing most of its sports content to Sporting News, AOL has gone back to the “anchor tenant” model in the sports category. And it has done the same thing in real-estate and health.This move, presumably, is mostly about cutting costs: AOL’s margins in its proprietary content business are lousy, and as its two big profit engines die–search and dial-up–it needs to raise the margins in the content business.
For now, the move is also said to be about “focus.” AOL will focus on creating content in the verticals that it’s good at–women and “influencers,” for example–and outsource everything else. And on one level, that also makes sense: It’s hard to boil the ocean.
But here’s the thing:
If you’re going shift your emphasis back to being a “distribution” play via the portal, why produce any branded content at all? Why not just do an “anchor tenancy” in every vertical and collect big cash for your distribution while it lasts? Why not also sell ads for your anchor tenants and spray them with traffic and collect most of the revenue while bearing only a small amount of the costs?
The latter would be only a minor modification of the classic “portal deal,” and it would be in keeping with the ad-network model of today. It would allow you to collect most of the revenue while bearing none of the content production costs (and none of the headaches–such as the current civil war between TechCrunch and Engadget).
In other words, if you’re going to leap back to a slightly modified version of the old portal model, one that starts to look like Federated Media, Glam, and other of today’s next-generation ad networks/content companies, why not go all the way? Why own a collection of competing brands (Engadget/TechCrunch) in certain channels, when you can partner with one brand in every channel, drive its business to the moon, and collect most of the revenue while bearing none of the content-creation costs?
We don’t mean to be absolutist about this: Of course you can go channel by channel and decide whether to “own” or “outsource.” But that’s likely harder and more confusing than going all one way or another. It’s also likely worse for readers: If you’re going to have an outsourced content model, you will want to link to the best stuff in every category every day–as, say, Huffington Post does–not rely on one outsourced content creator who might be mediocre.And, of course, the other problem with going half way is having to convince the talented folks who are beavering away on specific proprietary brands that they won’t be the next to get blown up and outsourced.
And that brings us to our next question for AOL:
Will TechCrunch and Engadget, et al, be the next sites that are nuked and licensed out to third parties? If not, why not? Why bear the big costs of staffing and running those sites when you can go out and find other folks to create the content more cheaply (to, in fact, PAY you to distribute the content)?
In other words, if it is the BRANDS and DISTRIBUTION that matter, and not the CONTENT (as is apparently the theory with FanHouse), why not blow out the expensive talent and just licence the brands to the highest bidder? Won’t that, too, improve the bottom line?
It’s an honest question. What, exactly, is the vertical-by-vertical strategy going forward? Where do you draw the line? How do you decide which verticals to blow up and which ones to keep? And how do you persuade talented content creators in all verticals to keep working for you when they know that they might be the next ones to get shot?
See Also: AOL’S NEW PROBLEM: Mike Arrington
* These captions aren’t quotes. They’re hypothetical thought-bubbles.