1 + 1 = I

Can all of the reasons AOL bought The Huffington Post ever be truthfully shared by those who made the deal happen?  It's all a bit of an act, isn't it?  The two main characters, one a huge football fan, left at halftime of the Super Bowl to start their performance in this business love story.  But something doesn't add up on this deal and has left many, including AOL investors, scratching their heads on the price paid. 

It's been over 10 years since I worked for Tim Armstrong while we were both at, so I got caught up in the hoopla this deal created and watched my old boss interviewed on CNN the week this deal was announced.  Tim, or TA as anyone who worked for him knows him by, sounded the same but with more polish.  He looked pleased sitting next to his extremely high-profile hire.  

After initial lighthearted joking, the first real question the interviewer Piers Morgan posed was, did The Huffington Post make a profit last year?  To which Tim sat back while Arianna shared that her company had revenues of "about $30 million last year and are on a trajectory to make $60 million this year" and that "yes, there were profits."  I wish Piers Morgan hadn't folded at that point and had asked these follow-up questions: What does 'about' $30 million mean? Again, what were the profits, and how is it you have so much clarity on your ad sales revenues this year that you can project a 100% annual increase while in February?



The host instead channeled Rupert Murdoch, pressing Tim on making this deal work solely by selling advertising and not charging for content.  His answer was classic TA: a metaphor with indistinguishable substance.  He said, "the Internet is about having open models, so right now we're saying it's free (and) we can say two years from now it's gonna be paid -- and my guess is we are gonna throw the ball to the open receiver."  

Piers, I gather not much of a football fan, moved on and pressed Tim about the drop in AOL's share price after the deal was announced.  He responded defiantly, "Piers, let me tell you right now -- and I have said this to our investors -- if you believe in the future of content and you believe in the future of the internet, AOL's the best buy and you will see a rotation of shareholders into our stock. And a year from now, we're gonna look back and see this was the most successful deal on the Internet."

Peel away the hype this deal generated, which does add real value for AOL, and you are left with more of what AOL has too much of -- ad impressions, whose value often plummets in the hands of online buyers.

So I have my doubts about this deal and am left with some nagging questions.  If AOL was so invested in increasing the company's content credibility in the news arena, they could have bought the iconic news brand last year for a dollar.  Did they even look at that deal?  If so, did they really come away thinking their investors were better off by spending $315 million dollars for a five-year-old news aggregation brand with more uniques and social media elements, instead of acquiring and then transforming a brand synonymous with news journalism at a bargain price point?  And had AOL bought Newsweek instead of The Huffington Post, would my old boss have been interviewed on CNN?

I was lucky to work for Tim Armstrong and genuinely like him.  I learned so much from him and about him, and I think Tim threw a pass to himself with this deal -- and will be quarterbacking another company before AOL recovers his fumble.  
2 comments about "1 + 1 = I".
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  1. Daniel Meehan from PadSquad LLC, March 2, 2011 at 3:22 p.m.

    Nice work Ari. Great point about Newsweek, and the hint that an efficient strategic idea like that one instead is eclipsed by a deal focused more on getting buzz in the industry. I can just see some media execs and investors thinking "But Newsweek has no scale!".

  2. Richard Monihan, March 16, 2011 at 12:11 p.m.

    Bingo. Highly questionable deal. Newsweek probably would've been a better choice. LOL

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