AOL Mistakes Outlined in Painful Detail
May 15, 2012
Starboard Value, who owns over 5% of AOL‘s stock, has some constructive criticism of the company and its CEO Tim Armstrong. Business Insider shares Starboard’s excellent analysis, helpfully annotated by reporter Jay Yarow, in “Huge AOL Shareholder: Here’s Everything Tim Armstrong is Doing Wrong.”
This is a very thorough, data-laden 43 slides that begins with who Starboard is, why it is involved with AOL, and why it is concerned. The core problem: display advertising losses. The first mistake the slideshow emphasizes is AOL’s plethora of brands and sales reps. The Huffington Post‘s tumble from profitability since AOL bought it features prominently here.
The biggest criticism, however, is reserved for Patch, AOL’s collection of local Web sites. This division, the presentation asserts, is responsible for the lion’s share of display ad losses. Starboard lays out the reasons they feel Patch is irredeemable:
“*Patch is a high cost business model that is not scalable.
*Local advertisers want direct response ads that have an attractive measurable ROI, which we believe Patch ads do not provide.
*National advertisers do not appear to value hyper-local advertising any more than they value broad-based display advertising because there is no evidence that proves it is more effective.
* As a result, we believe that the vast majority of Patch ad slots are filled with remnant AOL ad inventory, which could be used on any other AOL property.
* Even if Patch were to achieve its targeted revenue model, the business would still be highly unprofitable on its current cost structure.”
The presentation elaborates on each of these points, then follows up by insisting AOL take action on Patch and on display losses in general. Naturally, they also insist that the election of their nominees to the Board will help the situation.
There is much, much more information in the slideshow. Starboard Value is an investment company that focuses on helping to boost underperforming companies. They pride themselves on operating from a deep understanding businesses and markets. Created in 2001 through a spin-off from Ramius LLC, the company makes its home in New York.
Cynthia Murrell, May 15, 2012
Sponsored by PolySpot
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