AOL pursues its new strategy with deals for TechCrunch, 5min Media, Thing Labs

By Steven Overly
Capital Business Staff Writer
Wednesday, November 3, 2010; 8:44 PM

AOL brought a string of new companies under its corporate umbrella last week that executives and analysts say were acquired to bolster its transition from an Internet provider to a leading producer, distributor and advertiser of online content.

But 10 months since the once-dominant company split from Time Warner, AOL's "old business" as a gateway to the Internet, while shrinking, still provides a substantial amount of the company's revenue.

The result, analysts said, seems to be more wait-and-see as chief executive Tim Armstrong works to return the company to profitability and restore a legacy that's been tarnished by a sinking bottom line and unfruitful investments.

"There are definitely investors out there who are very skeptical," said Ingrid Chung, an Internet analyst for Goldman Sachs.

Last week's purchases of the Silicon Valley blog TechCrunch, online video distributor 5min Media and small social-media company Thing Labs all contribute to different pillars that AOL Media and Studios President David Eun said are needed to support a lucrative, audience-based business. Armstrong and other executives have espoused a future AOL that can mass-produce Web video and articles, distribute them across a plethora of Web sites and sell advertisements to profit from it all.

Last month, AOL also expanded an arrangement with Google to distribute video on YouTube.

"The consumer consumption is just irrefutable. It's safe to say you watch a lot more video today than you did last year," said Eun, formerly of YouTube. "When you see these trends, it's not that insightful to say video is part of our strategy."

TechCrunch provides AOL with a heavier footprint in the technology blogosphere as the company ramps up content production with other entities such as local online news network Patch, its collection of Seed freelancers and the purchase this year of StudioNow.

ComScore, a Reston-based tracker of Web activity, shows AOL's Web properties drew 107 million unique visitors in August, up nearly 10 million from October. But some analysts say TechCrunch's contributions to the company's larger strategy are unclear. AOL already operates the tech site Engadget.

"Most of the actual coverage of content was different and the unduplicated audiences are quite large," Eun said of Engadget and TechCrunch. "So once we combine forces here we'll have much more presence and traffic."

Ross Sandler, an Internet analyst at RBC Capital Markets, said TechCrunch attracts only a niche audience. ComScore reported that TechCrunch's collection of sites had 3.8 million visitors in August.

"It's a great little site and a great little business. I'm just not sure why AOL needed it," Sandler said. "It doesn't really do anything for the content management strategy they've been trying to build up."

Chung, the Goldman Sachs analyst, interviewed Armstrong at an investor conference late last month. He said he wants to build AOL's brand identity around certain audiences, and technophiles are one of them.

"I do think that it helps them focus their brand identity around those demographics," Chung said of TechCrunch.

In that same interview, Armstrong said he expects 2011 will be more favorable to the company's bottom line. A spokeswoman said AOL is now in a quiet period about finances before its next earnings report.

Chung said that the company's advertising sales force will probably stabilize after a reorganization this year and that she expects the revenue gap between AOL and competitors such as Yahoo to narrow. Still, her prediction models and those of other analysts do not indicate significant gains for the company in the near term, she said.

"There have been very few Internet turnarounds ever, so there is definitely a level of skepticism," Chung said. "But I think at the same time there is a lot of optimism that if anyone can do it, Tim Armstrong is the right person in the right seat to do it."

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