No Matter How Much Sausage AOL Grinds, Revenue Growth Will Be Tough
The AOL Way, AOL CEO Tim Armstrong's master plan to revitalize the company -- and, perhaps, avoid future massive revenue declines -- hit the desk of every employee today. In hard copy.
That alone indicates the underlying disconnect at a company that wants to be a victor in the new media wars. AOL's current state is none too good. Advertising and subscription revenue were down 26 percent from 2009 to 2010. Armstrong's answer is to follow the SEO-centric model of Demand Media (DMD), with one eye on the keyboard and another on Google (GOOG) search results. But the mathematical heaven that he wants could turn out to be hell for the business.
The revenue drop is actually worse than it looks. Advertising, at least, has the possibility of improvement. But subscription revenues -- 42.4 percent of all revenue, mostly from people who still either use dial-up or forget they have it is (reputedly three-quarters of them) -- won't return once they are gone.
Revenue cart leading the editorial horse
Business Insider got a leaked version of Armstrong's plan. What is notable is how much revenue considerations will drive editorial direction. Any publication, online or print, considers what readers want to see when choosing topics. But AOL has such a focus on how much traffic the average story should get that it will intimidate employees and drive overly cautious choices.
Currently the company produces 31,000 stories and videos -- "pieces of content" -- a month. Writers on staff are supposed to generate between 5 and 10 stories a day, a rate that will make the notoriously high volume of wire service reporting look like a series of leisurely New Yorker pieces.
By the end of March, AOL is supposed to produce 40,000 pieces a month. Average cost per piece is supposed to drop from $97 to $84, or 13.4 percent. Armstrong wants an SEO checking tool applied to 95 percent of everything by April, rather than the current 40 percent. The average number of page views per article is supposed to jump from 1,512 to 7,000. Anyone in the business can tell you that these numbers are pretty damned aggressive, particularly given the large number of pieces being created.
All the news that pays its own way
The first official step in generating content is to "identify high demand topics" in search engines. Second is to consider the traffic and revenue potentials of a given story before writing it. For topics that don't make the numbers cut, editors are to "consider packaging evergreen opportunities for sales to sell." In short, every story will have to pay for itself first.
Again, any publisher needs revenue and wants high traffic, whether in page views or copies sold on the newsstand. And yet, with the shifting electronic pulse, this approach leaves AOL trailing news and public opinion, as expressed in search statistics. But the way to get the traffic numbers is to do what others haven't yet by breaking stories. Look at the traffic patterns for hot trends in Google searches -- the one below is for "waste management open," a trending topic late on a Thursday afternoon:
To catch the peak of traffic is very difficult because it happens so unexpectedly and is usually over quickly. But find a story that others don't, and you have the chance to create the peak. For example, when Gizmodo got an early look at an iPhone 4 prototype, the site had 20 million page views. That type of traffic is pretty difficult to achieve following someone else's trend.
At most, such a strategy will help protect the traffic that AOL's sites already get. But Armstrong wants to grow the business, not just preserve it. He deserves some sympathy, because no one else in the media, print or online, has a proven formula for success right now. Still, doing more of what currently gets you nowhere is unlikely to be a winning strategy.
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