Has Huffington Helped AOL Become Content Juggernaut -- Or Other Way Around?

As Company Finds Its Way, Arianna Does Well For Her Namesake

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A while back an elderly relative of mine told me about an outing she went on. She belongs to a senior center, which organizes trips to nearby restaurants for regular group lunches. One time the bus full of seniors arrived a bit early, so they were able to witness the restaurant staff mid-prep. From a distance, they saw waitresses frantically removing the salt-and-pepper shakers from all the tables where the group would be seated.

Why? I asked.

"Well, senior citizens are on fixed incomes and they like to ... borrow things," my relative explained.

Why am I telling you all this? Because next week AOL will issue its first-quarter earnings report. Bear with me.

First, I'll say that I fully expect the internet giant to issue positive news of some sort, keeping the ball rolling from the last quarter, when it reported a 4% increase in revenue to nearly $600 million; Wall Street was definitely happy to see quarterly growth for the first time in eight years.

Among the predictable bright spots: AOL's Huffington Post, which will, surely, once again tout its traffic growth. Which, on the surface of things, would be great, because AOL's February 2011 purchase of The Huffington Post for $315 million -- and acqui-hire of Arianna Huffington, who became president and editor-in-chief of the Huffington Post Media Group -- is key to AOL CEO Tim Armstrong's big content play. Under Arianna's direction, AOL is supposed to become a state-of-the-art media company, a content juggernaut designed to give agencies and brands access to not only passionate, engaged audiences across verticals, but massive scale. Indeed, as Bloomberg Businessweek's Edmund Lee noted last month, citing ComScore data, "HuffPo's monthly unique viewers have soared to 45 million in the past two years, rising by an average 22% per month in the second half of 2012."

Lee correctly pointed out that HuffPo has gotten a huge boost from traffic driven to it by the AOL home page. But a largely (already) forgotten part of the Huffington era at AOL: Arianna's real-estate grab. She rebranded a bunch of existing AOL editorial content -- aolnews.com was redirected to huffingtonpost.com, AOL TV was relabeled HuffPost TV, etc.

Arianna also started aggressively spending AOL cash to acquire old-school journalistic talent. Tired of being tarred in the press for her site's shameless borrowing of other news organizations' journalism -- i.e., HuffPo as the ├╝ber-aggregator -- Arianna poached a bunch of editors and reporters from The New York Times, Wall Street Journal, etc., so HuffPo could do more original reporting.

She also went on a costly international ego-expansion spree -- launching Le Huffington Post in France, for instance -- which helps explain why HuffPo, which was briefly profitable as an independent company, is now bleeding red ink under AOL's ownership.

As Lee reported, AOL's overall unique views have seen little net growth since the HuffPo purchase. It seems that Arianna, the Great Borrower, arrived at AOL intent on grabbing resources from the rest of the company to shore up her own personal media brand. One sign that AOL has figured out Arianna's self-serving strategy: A year ago she was stripped of control of non-HuffPo-branded properties, including TechCrunch and StyleList.

As we reported on AdAge.com in February when AOL announced its revenue growth, domestic display-ad revenue at the company actually dropped 3% year-over-year. The companywide revenue gains in the fourth quarter came mostly from AOL's search business and its third-party ad network business. (Ned Brody, chief of AOL's ad-tech group, AOL Networks, just quit; Armstrong named himself the acting chief.)

It's worth noting here that a huge chunk of AOL's operating income still comes from the Membership Group. InfoWorld's Robert X. Cringely recently characterized that division's purpose as "ripping off octogenarians" -- getting them to keep paying for AOL dial-up service, even if they already get internet through their cable or phone company, because they don't realize they can keep their @aol.com email addresses for free.

The AOL Brand Group -- the umbrella for editorial properties including HuffPo, TechCrunch and local-news network Patch -- accounts for a comparatively tiny percentage of AOL's operating income.

Hell, when you consider those ratios, Arianna Huffington's M.O. doesn't seem so out of character. Pre-AOL, she took advantage of the journalism produced by other organizations. At AOL, for as long as she could, she took advantage of whatever resources she could lay her hands on to fuel the expansion of her namesake property.

Meanwhile, the entire content group at AOL, whose goal is to be a next-generation media company, depends on it continuing to take advantage of senior citizens too clueless to cancel their dial-up accounts.

At 62, Arianna Huffington is just a few years away from being a senior citizen herself.

My advice to Tim Armstrong: Keep a close eye on your salt-and-pepper shakers.

Simon Dumenco is the "Media Guy" media columnist for Advertising Age. You can follow him on Twitter @simondumenco.

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