But the company’s tenure under the wings of Time Warner apparently rubbed off. AOL started reinventing itself as a content company after its spin-out in 2009. While no longer an internet behemoth itself, AOL is poised to take on the new giants of the internet.
Social content
AOL’s biggest move since the spin-off was purchasing the Huffington Post for $315 million in 2011. AOL has invested heavily in the news and opinion site, expanding the website internationally to Europe, and plans to launch in Japan next month. Additionally, AOL launched HuffPost Live last year, providing 60-hours of live video commentary every week.
The Huffington Post specializes in headlines designed to go viral on social networks. Just looking at the website right now provides clickable headlines such as “19 Products You’d Have to be Stoned to Come Up With” and “Zooey Deschanel Misidentified as a Boston Bombing Suspect.” Considering 27% of time spent on the internet in the U.S. is used browsing social media sites, the strategy has done well leveraging that trend, and attracting an audience to the second most popular internet activity – entertainment.
The combination of viral headlines and placement in aol.com’s curated content portal resulted in fantastic visitor numbers growth. Since its purchase in 2010, HuffPo’s traffic more than doubled to 62 million unique visitors last month, making it the fourth-most-widely-read news site in America.
The progress at HuffPo isn’t echoed, however, amongst all of AOL’s media brands. In particular, Patch, the hyper-local news network, has been largely disappointing. While AOL expected $40 million to $50 million in revenue from Patch in 2012, it came in well short with just $34 million in sales. CEO Tim Armstrong still says the network ought to be profitable by the fourth quarter of 2013.
Video content
Most people know that Google Inc (NASDAQ:GOOG)’s YouTube is the most popular video streaming site in America. Few are aware that AOL operates the second largest online video network. Not only does it operate HuffPost Live, the AOL On Network draws in 35 million unique monthly visitors.
Unlike Google’s YouTube, which puts the content production in the hands of the many, AOL curates its content. It’s AOL’s attempt at capitalizing on cord-cutters looking for a new outlet for entertainment, business, news, and other videos.
The online video market is growing, and ad-budgets are pouring more money into the outlet. Online video advertising is expected to top $4.1 billion this year, up 41% from 2012. Meanwhile, the number of online video outlets is increasing rapidly, putting a drag on margins and ad prices, which fell 10% to 15% last year.
Interestingly, online video ads have achieved price parity with television ads. This presents an opportunity for online video to take ad-share from television. YouTube recently started increasing its investments in “channels” and commissioning original content. I see this as an effort on Google Inc (NASDAQ:GOOG)’s part to get users (and advertisers) to see YouTube as a viable alternative to television programming and spend more time (money) on the site.
Advertising
Another significant portion of AOL’s new strategy is growing its ad network. Earlier this month, the company launched its supply side platform, Marketplace by AdTech. The platform is a direct shot at Google Inc (NASDAQ:GOOG) and Adobe Systems Incorporated (NASDAQ:ADBE), which run similar services for publishers. AOL aims to decrease the complexity of using multiple companies to sell and serve digital advertisements. Additionally, AOL offers a higher percentage than the usual 50% cut its competitors offer.
As a content publisher itself, AOL has a unique insight as to what publishers want or need out of an ad-selling and serving network. This vertical integration ought to prove beneficial in time as the nascent platform grows.
Last month, the company partnered with Facebook Inc (NASDAQ:FB) to bring in the huge inventory of ad-impressions that Facebook Exchange provides. While Adobe also joined the fold, Google remains uninvited. As a result, AOL gains valuable knowledge that allows them to compare ad efficacy on Facebook compared to other outlets including its own websites. It can then share this knowledge with clients to improve their returns.
Facebook looks to be moving in a similar direction. Its purchase of Atlas from Microsoft earlier this year should help the company better attribute an ad’s performance. It also allows for direct comparisons of ad campaigns on Facebook Inc (NASDAQ:FB), off Facebook, across mobile and desktop, and even Facebook ads to traditional media like TV.
AOL’s partnership with Facebook gives it one small advantage over Google Inc (NASDAQ:GOOG). Many of Google’s DoubleClick clients would like access to Facebook Exchange, but Facebook Inc (NASDAQ:FB) doesn’t want to give Google the benefit to what it sees as its biggest competition. For now, AOL is benefiting from the standoff.
Vertically integrated
AOL is becoming increasingly vertically integrated: It offers access to the internet (although its subscriber base continues to shrink), the content people want access to, and the advertising network that’s essential to publishers. It’s trying to become the Time Warner of the internet.
AOL has a long way to come back. I believe its 4% revenue growth in the fourth quarter of last year is just the beginning after the company faced falling revenues for eight straight years. We’ve finally reached the point where its content brands and ad business can offset the lost subscriber revenue, and the company can begin to grow again.
The article AOL: Competing With Content originally appeared on Fool.com.
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