AOL: Spreadsheet Fever Revealed

May 28, 2012

Some Googlers and Xooglers are persistent folks. Once an idea takes hold, look out, mama. Public examples of spreadsheet fever and Xoogler behavior are difficult to find. I wanted to document this rare sighting, tuck it into my “case study” file, and capture the main points in Beyond Search, the blog with one or two readers worldwide.

You may be able to located “For AOL, a Costly Gamble on Local News Draws Trouble” online. I am looking at a dead tree instance of the write up in the May 23, 2012, Wall Street Journal, pages B-1 and B-2, a News Corp. publication focused on “real” journalism.

The point of the story is that AOL is losing money on upscale local news. The site and service scoped by the “real” news people is Patch, a local news service. I don’t pay too much attention to local news because I live in Harrod’s Creek, Kentucky. I can hear gun fire from my goose pond, and the local newspaper focuses on recycling two-day old corn from the Associated Press content grinder and a handful of thrift shop columnists.

Luke levitates the crashed X wing fighter. Yoda “teaches” the young Jedi to perform a seemingly impossible task. “Use the Force, Luke. Use the force.” Image source:

But AOL’s local news effort has compiled this track record, according to the News Corp. unit:

Mr. Armstrong has held his ground in defending Patch, which he co-founded in 2007 before he joined AOL, but he recently promised to make it profitable by next year. In a small step toward that goal, AOL said Tuesday it will cut around 20 jobs at Patch, or less than 2% of Patch’s workforce…As the ad-supported network has expanded to more than 850 towns from 30 in the past two years, its annual loss has widened sharply to more than $100 million in 2011…That would be twice the size of AOL’s operating income for the year.

Not bad. What was omitted at this point in the “real” news story was the fact that Mr. Armstrong, a former Google executive or Xoogler, sold Patch to AOL for $7 million. No big deal. Another “real” news outfit asserted that AOL “may never be able to patch up Patch.” Who took this view? The “real” journalists at Fortune Magazine.

I quite like the notion of building something, getting some cash, a job at the outfit which purchased my operation, and then having the luxury to invest big bucks in trying to do the Yoda thing. As you may recall, Yoda taught Luke Skywalker to life a space war ship by thinking about it. Cheaper than $100 million, but about as practical as the AOL way.

The real gem in the write up, however, was the revelation of spreadsheet fever. Here’s the key passage in my opinion:

Mr. Armstrong developed the business model for Patch with Jon Brod, the former president and chief operating officer of his private investment group. The idea was to target wealthy small communities that generated about $20 million a year in advertising through TV, radio, newspaper, and direct marketing. “We basically said, based on our model, if we could get [less than 1%] of that $20 million, we would have a profitable Patch in that community,” Mr. Brod said.

The News Corp. publication continued:

Patch, however, has fallen well short of that target. AOL says the business is on track to bring in between $40 million and $50 million in revenue this year. That translates to an average of $50,000 for each of its 850 local sites. But the average Patch site costs between $150,000 and $200,000 a year to operated, Mr. Armstrong told investors last year, or a total of $160 million.

What I find useful is the revelation about the revenue assumption and the apparent goof on the actual costs of doing local news, selling ads, and keeping the ship afloat in the midst of Facebook and Twitter. Both services work pretty well to find out what is going on in a particular location. Since both generate local information as exhaust, the entrepreneurs behind Patch may be guilty of looking at an Excel spreadsheet, modifying assumptions, and concluding, “Winner. Tiger blood.”

I don’t have an opinion about Patch. I do find the persistence demonstrated by Mr. Armstrong Googley. I find the patience demonstrated by the Board of Directors interesting at a time when Boards of Directors are doing a bang up job. I wonder if Yoda is available to provide levitation lessons to the Jedis at AOL. Xooglers have the Excel fever under control I assume.

Stephen E Arnold, May 28, 2012

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