Why AOL Bought TechCrunch

Tim Armstrong Explains Why Portal Decided to Buy This Time Rather Than Build

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NEW YORK (AdAge.com) -- AOL CEO Tim Armstrong told Ad Age today that he wants a "build-first" culture at his company, in which the growth is sparked internally, like the world's oldest startup. So why did he also just pay a reported $30 million, including incentives, to buy TechCrunch, the tech and startup news blog founded by former attorney and impresario Michael Arrington?

Tim Armstrong
Tim Armstrong Credit: Scott Gries
It's an echo of AOL's 2005 purchase of Weblogs, a collection of blogs that included Engadget and Joystiq, but it's a different direction than AOL's more recent build-not-buy ethos. But AOL isn't done. Earlier today it announced its acquisition of video startup 5Min for close to $65 million, and it has kicked the tires on companies such as Mashable and Howcast.

So why did AOL choose to buy?

TechCrunch has a big 'quality' audience: TechCrunch claims its network of sites reaches more than 9.2 million readers every month, generating 30 million page views in the process. ComScore says it draws in about 7 million global readers per month. Either way, it's clear they're high-value readers. Unlike Engadget, the profile of TechCrunch's audience tends toward angel investors, venture capitalists, executives and people highly interested in technology news. "There's almost no overlap between the two," said AOL sales chief Jeff Levick.

TechCrunch brings more of an insider's readership, which AOL can potentially sell at higher ad rates.

But it's also a consumer audience: Even without AOL, TechCrunch has managed to land consumer advertisers such as Cadillac and Mercedes. "You get both audiences," Mr. Armstrong said. "We felt it's a two-for-one transaction."

TechCrunch has conferences: Along with TechCrunch's readers, the blog company's bi-annual Disrupt conference is a moneymaker, according to Mr. Arrington. Every tech startup pays money to set up a tent and make its pitch to the hordes of investors that show up. Also, bigger media outfits (such as AOL) come to see what the next big startup will be, presumably so they can buy it.

Michael Arrington
Michael Arrington
It may be profitable, or close to it: TechCrunch is a private company and does not publicly disclose its revenue figures, but Mr. Arrington has claimed in the past that the company is profitable, booking close to $10 million annually. That figure may not be far off, and given its relatively lean staff of around 32 people and its highly attended conferences, it's easy to see TechCrunch in the black.

AOL's internal startups have been problematic: AOL's best media properties, such as Engadget and Joystiq, were acquired from the outside. Meanwhile, its internal media startups have lacked focus. Said one AOL staffer: "Everyone in the company is very aware of the implications when Armstrong says he will continue to invest in things that are profitable, and that has implications for the existing properties."

OK, there's one potential pitfall: Mr. Arrington's big presence on TechCrunch cuts two ways. His voice, the loudest and best-known on the site, could be potentially troubling for his new bosses. Mr. Arrington becomes a part of the story when he publicly jousts with PR folks as well as executives, which may become a liability for AOL, a large, publicly traded company. It remains to be seen whether that voice will cause trouble for Mr. Armstrong.

Readers, of course, love it. But the other question, then, is whether news blogs built around a personality can continue to thrive after that personality's eventual departure is an open question for not just TechCrunch but Business Insider, PaidContent, GigaOm, Mashable, Venturebeat and ReadWriteWeb.

But Mr. Armstrong isn't worried: AOL has locked down Mr. Arrington for three years and Mr. Armstrong would like him to stick around "forever."

"A lot of these companies do start out as founder-driven, but we would expect Michael and the brand to continue to grow on a go-forward basis," he said.

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