In the search for Internet business models, the old-line players remain Absent Without Leave, or AWOL.
AOL business model passing
Many, like the New York Times Co., have given up the search for reach in favor of squeezing what readers they have for cash. This makes them lousy propositions for advertisers seeking reach, or scale for that matter, and such stocks are slowly circling the drain. If you’re not buying them for yield – and they killed their dividend years ago – why are you even looking at them?
For a time it seemed that leadership would pass to AOL, Inc. (NYSE:AOL), especially after The Huffington Post was acquired. HuffPo figured out how to combine news with social networking, and was able to get more reach with the same stories papers like the Times were trying to sell for cash than the Times itself.
But there’s a problem with that model. Those who are giving you their raw material for free stop doing so. Creating the material may cost you more than it brings in. This has become clear with the company’s network of Patch web sites, which are now being wound-down.
That’s why AOL, Inc. (NYSE:AOL) stock has stalled out. Since its claim to have reported revenue growth in February propelled the stock to $37 per share, the stock is down 10%. Revenues for the quarter ending in June were $531 million, just $10 million more than a year earlier, and margins on that revenue are down in the 6% range.
AOL, Inc. (NYSE:AOL)’s relative success has been attained by cutting its expenditures, essentially squeezing on all fronts, just like papers such as the New York Times succeeded early in the last decade. But without substantial growth in page views, and top-line revenue, it’s hard to see how much further that company can go.
What’s left is the Yahoo! Inc. (NASDAQ:YHOO) business model, which got a boost this week when it poached Megan Liberman from the New York Times as editor in chief for Yahoo! News. This is not a big problem for Liberman, since the Times and Yahoo! Inc. (NASDAQ:YHOO) have their New York bases in the same building.
Liberman is not a typical Timeswoman. She is given credit for hiring Nate Silver and for creating the paper’s blog network, highlighted by the parenting blog Motherlode. She may have been the last business brain left at that dying company. Yahoo! Inc. (NASDAQ:YHOO) took almost six months replacing the previous head of news, Hillary Frey.
Yahoo! seeks content, can monetize it
Liberman’s background is the tell as to what happens next. She’s going to be scouring the Web for blog stars she can turn into cash. Much of Yahoo! Inc. (NASDAQ:YHOO)’s existing content comes from agreements with existing content providers. Many stories from TheStreet.com wind up on Yahoo! Inc. (NASDAQ:YHOO), for instance. The service also uses wire copy, and the company has similar deals in other areas, as with Takepart.com.
What Yahoo! can deliver to these sources is reach. By being able to dramatically increase a story’s page views, then monetizing that reach through run-of-network advertising, Yahoo! has built a nice second-hand business.
Liberman will be trying to increase the volume of content delivered through this network. Editors will pick through a wide network of offerings in order to fill their own pages and looking for wide circulation.
As more-and-more newspapers and other media entities put up paywalls, the effectiveness of this strategy increases. Users of Google News often find they can’t get to stories from Google Inc (NASDAQ:GOOG), because of paywalls, but because Yahoo! Inc. (NASDAQ:YHOO) has financial agreements with the content providers it links to, not only do the links work but Yahoo! has a chance to monetize that content.