Can AOL cook up a winner with Patch? Featured

10:30am EDT July 6, 2011
Can AOL cook up a winner with Patch?

In the last two years, AOL has become a target for criticism of its acquisition strategy. AOL purchased the controversial niche news service TechCrunch and then bought the even more controversial Huffington Post, making its founder Arianna Huffington, the editorial chief of AOL’s burgeoning online content operation.

One wit said, “AOL’s is changing its familiar ‘You’ve got mail’ to ‘You’ve got problems.’”

Despite the slings and arrows of financial television show hosts, AOL may have a trick up its sleeve. The company could, according to Auctionbytes, use its content to increase its share of the burgeoning market for online advertising.

The company acquired a local news and information company called Patch in June 2009, a company founded by Tim Armstrong. Armstrong was the president of AOL at the time of the acquisition, which means that Patch was important to the long-term content strategy of the floundering AOL. At the time of the acquisition, I assumed that Armstrong was negotiating the deal. In “Back to the Future,” AllThingsD.com reported that Armstrong allegedly told AOL staff that he would not make a profit on his stake in Patch. At about the same time, AOL bought Going, which was a social networking company.

News is circulating via blog stories like “AOL’s Patch, AmEx Targets Groupon with Patch Deals." The idea is that AOL wants to be a player in the local online advertising market. What makes the AOL rumors interesting is that unlike some of the companies competing in this sector, AOL has local content, a social networking technology, millions of users and a number of high traffic websites that can generate buzz about AOL’s products and services. A Web watching blog, WebProNews.com said, “AOL Launches Patch Deals…Yes, Another Deals Service.” The blog crept out on a limb and said that the service would be a Groupon clone. The roll out is slated to take place in the fall of 2011.

First, what is Patch? The service is a bit like the local newspaper. Unlike the print publications that are created to serve a narrow geographic region, Patch describes itself as “hyperlocal news.” With most major newspapers chasing big stories and recycling content from various services and syndicates, information about the local soccer club tryouts and the junior college play schedule are difficult, even impossible to find. Google indexes billions of pages, but the search system does not make it easy for me to find out when the Montgomery County Seneca Valley High School book sale will be held this year.

Patch captures news and information from small cities. The goal in 2010 was to cover 500 U.S. cities. The company uses paid staff and has a “foundation” to help “improve the quality of life in underserved communities across the globe and through access to trusted local news and information.” One of the advisors to AOL Patch is Jeff Jarvis, a college professor and expert on Google. He complements a full lineup of professionals.

The one issue that I have is that I have not encountered anyone who uses Patch. In a recent story of local online advertising, the sample included in our research did not mention Patch a single time. AOL has a formidable marketing machine, but in the noise about local advertising, local search and local maps, AOL’s voice is not being heard.

There is a website, quite a fancy one in my opinion. Navigate to Patch.com. You will see a list of states in which the local information service operates. I am writing this column for a company based in Cleveland, Ohio. According to the map of Patch coverage, Ohio is one of the states the service covers. Kentucky is not so lucky. Neither is Texas, Indiana, Oregon and two dozen others.

The cities Patch “covers” in Ohio are Avon Lake, Avon, Beachwood, Brecksville, Cleveland Heights, Cuyahoga Falls, Fairlawn-Bath, Hillcrest, Kent, Lakewood, Mentor, North Canton, Solon, Stow, Strongsville, Twinsburg and Westlake.

If we dive into a community with which I have some familiarity, Cuyahoga Falls is among the more affluent cities within commuting distance of Cleveland and the now shuttered marine park. A click on the Cuyahoga Falls Patch link displays news about a ceramics program for those 60 and up, a “Mid Day Serenity” event at the Paradise Club and ballroom dance lessons at 6:30 p.m.

The content seems to be a blend of bylined stories; for example, the “Q&A with Woodridge Graduate Jessie Greene-Hill” was written by Alanna Klapp, who is a freelance writer.

For a merchant in Cuyahoga Falls, the opportunity to put a message in front of Patch information consumers in Cuyahoga Falls makes perfect sense. There is one big challenge — traffic. Small communities will have smaller populations. Cuyahoga Falls is a reasonably affluent community, so one would expect that most households would have a computer and a good percentage Internet access. Smartphone penetration would also be higher than the phone penetration in Harrod’s Creek, Kentucky, by way of comparison.

However, when I checked Patch traffic on the Compete.com service, Groupon was in the 29 million unique range, LivingSocial was 14 million, and Patch.com was 5.5 million. Compete reports that traffic for Cuyahoga Falls Patch is climbing, hitting 8,000 unique visitors in April 2011 up from about 700 uniques in December 2010. The growth of the service is excellent, especially at a time when many websites have been adversely affected by Google’s anti-spam activities called Panda.

Details about Patch Local are sketchy. Some broad outlines of the service may be discerned in the information leaks surfacing in the Internet media.

Patch wants a piece of the advertising revenue in certain cities. Like Cuyahoga Falls, Patch wants to capture some of the advertising dollars flowing to hard copy newspapers service cities like New Canaan, Connecticut. In the city, BNet reported that there is New Canaan Patch, the New Canaan Advertiser, and a weekly Hearst paper, New Canaan News. Patch, not surprisingly has the AOL.com online brand and a staff of Twitter savvy professionals plus and a motivated president, Tim Armstrong, a former Google executive.

Patch’s angle may be a lower cost, lower risk alternative to Groupon. After fees, merchants using Groupon have to cover the customers from what is 25 to 30 percent of the regular price of the product or service. Groupon has been attracting some negative feedback when a poorly conceived coupon promotion creates a money losing situation for an advertiser. Patch and its partner American Express may pursue small businesses with combination offers. A joint promotion to American Express card holders and the AOL online user community could be an angle that puts traditional media and newcomers like TryItLocal.com under pressure. A price war could make online local advertiser a bargain for merchants who have an appetite for new media marketing.

AOL has played a role in online communities since its inception. I recall attending a conference at which AOL and CompuServe executives discussed the vibrancy of forums and discussion groups. The Facebook DNA, in my opinion, can trace its heritage to the early and largely unmoderated forums on these early online services. Unlike companies that talk social like Groupon and LivingSocial, AOL has deep social technology roots and quite a bit of experience in leveraging its customer base.

The Patch Deals FAQ provides additional early stage details about the forthcoming AOL service. Keep in mind that with a release date months in the future, the exact shape of the service at launch can change significantly. AOL Patch’s key differentiator is that advertisers will not have to make an upfront payment, obviously an alternative to the Groupon method of getting the merchant to pay upfront fees. AOL makes clear that it will promote the service “a couple of different ways: “via e-mail, through Patch’s daily and weekly newsletters, and thorough social media such as Facebook and Twitter.”

When Patch becomes available, should a local business consider advertising on the service? Will Patch pose a challenge to local newspapers and information services from bloggers and commercial publishing operations? Will Patch be able to carve out a profitable niche in a very crowded sector?

These questions are difficult to answer. AOL needs a revenue win, and it may have the right combination of ingredients: A dash of Huff-Po, a chunk of Patch, and a smidgen of AOL. Might be a Top Chef recipe.

Stephen E. Arnold is a consultant. More information about his practice is available at www.arnoldit.com and in his blog at www.arnoldit.com/wordpress. His most recent book is The New Landscape of Enterprise Search. For information, visit http://arnoldit.com/wordpress/landscape/.