Why AOL’s “ 2.0” strategy will work… for a while


It’s been almost month or so since the covers have been lifted on the newly public AOL and their newly refocused strategy under the helm of Tim Armstrong.  In a CNBC interview a few weeks ago he explained his vision:

“We’re building the world’s largest niche, you know, media business. And niche meaning at scale. We wanna have a lot of properties with a lotta users on them. And then, the second piece is really that fragmentation is our friend. As the internet becomes more fragmented, when– if you can produce great content in niche areas and then really leverage the distribution on the internet, you’re looking at a very high scale, high ROI, return-on-capital business.”

What does this mean in practice?  Paidcontent summed up the new AOL content strategy:

“Rather than just rely on editors and journalists deciding on what kinds of stories to run, AOL (NYSE: TWX) will employ a system that relies on a series of algorithms that will predict of the kinds of stories, videos and photos that will have the greatest appeal to audiences and advertisers…  AOL will using the forthcoming site to coordinate article assignments among its 3,000 freelancers. The new system will also help determine how much freelancers get paid, as it predicts how much marketers might pay to advertise on a particular article.”

If you were to count off the major trends on the web today, fragmentation (both publisher and resulting audience traffic) would be near the top of the list.  And this strategy of building a series of publications around vertical topics plays right into this movement.  Tim is building a content-generation machine which will by definition of its creation find a (large) audience.

This strategy sounds awfully familiar to me, as it’s reminisce of’s (founded as The Mining Company) in the late 90’s where a few hundred “guides” created and curated content on various niche subject areas.  But originally had a discovery problem, as consumers didn’t perceive it as a destination to find out “about” things and fell second fiddle to other portals which commanded a stronger brand.  The property finally came into its own earlier this decade when Google rewarded its deep linked pages when people were searching for niche subject areas on its engine.

AOL is now embarking on a similar strategy to leverage this content generation and discovery mechanism, but with a much grander scale.  Yet there are two positive key differences to today’s AOLs approach vs.’s of earlier this decade:

  1. Content generation will be driven by market mechanisms, not by the whims of guides like Sarah in Arkansas.  If people are searching for a specific subject and those pages will garner high eCPM rates, then the freelance journalists will be driven to write specific article based on tangible audience demand.  A metric-driven approach to content generation matches the algorithmic judgment of search engines.
  2. Disparate brands for consumers with a single brand for advertisers.  Rather than an overarching one-size-fits-all(or -none) brand, it is instead deploying numerous ones which match the various audiences.  AOL has already learned the lesson that people would rather get their celebrity dish from TMZ as opposed to AOL Gossip.  And they’re going to roll this out with hundreds of sites beyond, giving them more headroom than you could ever get under just one banner.  Despite brand proliferation on the consumer side, advertisers will find comfort in a newly freshened but very familiar AOL brand as the keystone to their ad buys.

Both of these key strategic difference, assuming that management can execute, will lead the company to a more much successful content creation and monetization story than today’s incarnation. 

However, this niche-ification strategy will only work for so long.  Because not only has the world changed in towards a more distributed web over the past ten years as AOL has declined, it has also become a more social one.  It’s becoming apparent that an increasing amount of referral traffic is generated from social networks, as opposed to search.  AOL is essentially creating a traffic magnet… for what will soon become an old paradigm.  Though Tim plays lip service to community publicly, it’s not incorporated into the new company model.  With Bebo being orphaned into the AOL Ventures unit along with, the company is pushing the social phenomenon to the side.

Can AOL’s “ 2.0” strategy succeed?  Yes, while the world looks like it does today.  But as online content becomes increasingly social, AOL will be left searching.

Disclaimer: I co-founded Sombasa Media which we sold to and worked there for a couple years.

Posted via email from genuinevc’s posterous

David Beisel

David Beisel is a co-founder and Partner at NextView Ventures. He has been focused on early stage Internet startups his entire career, both as an entrepreneur and venture capitalist. As an investor in the digital media space, David was most recently a Vice President at Venrock and previously a Principal at Masthead Venture Partners. Prior to becoming a venture capitalist, David co-founded Sombasa Media, an e-mail marketing company best known for its flagship product BargainDog. Sombasa was successfully acquired by where David served as Vice President of Marketing. David holds an MBA from the Stanford Graduate School of Business and an AB in Economics, magna cum laude and Phi Beta Kappa, from Duke University. He also founded and leads the Boston Innovators Group, an organization which holds quarterly entrepreneur events drawing a thousand attendees.