Why No One Cares About AOL

Over the last few years I’ve written several times about AOL (NYSE:AOL), the former America Online. Hardly anyone read any of it, and almost no one responded, except perhaps with political jibes directed toward Arianna Huffington.

This despite the fact Huffington has created far more editorial value in the last five years than anyone in the print media business. At the time AOL was bought by Verizon (NYSE:VZ), The Huffington Post was estimated to be worth $1 billion. Contrast that with New York Times Co. (NYSE:NYT), a 165-year old company and one of the primary editorial voices in the world of journalism, currently worth about $2.5 billion.

It’s not just investors who are ignoring the HuffPo story. Journalists are also ignoring it. What Huffington has done over the last decade is help launch a revolution in journalism. Some of it has passed her by, but the whole industry – which I have been part of all my life -- is being radically transformed before our eyes.

Huffington is not alone in seeking to use interactivity to build the largest possible audience for her journalism product, and therefore the most advertising dollars. Companies like Buzzfeed, Vice, and Vox have been unlocking these secrets right along with her, sometimes ahead of her.

What they’ve come up with are a host of methods for extracting maximum page views out of a minimum amount of editorial time. They host discussion forums, they use Search Engine Optimization to maximize audience, and create what is derided as “click bait,” stories with provocative headlines created mainly by combining other news stories into a point of view.

In doing all this the new journalism sites are pioneering something 21st Century Fox (NASDAQ:FOX) did two decades ago, when it was all still part of News Corp. (NASDAQ:NWS). Rather than create news stories, as Time Warner’s (NYSE:TWX) CNN was doing, they simply put people in a studio to talk about the news. This drew a bigger audience, and the expense was easy to control. It was immensely profitable, and remains so.

None of this really has anything to do with politics, despite what those who deride Huffington or Fox may say. The real villain is Google (NASDAQ:GOOG). Here is why.

The journalism business model has always been based on extrinsic targeting. You buy ads at Seeking Alpha because investors read Seeking Alpha. You buy ads at The New York Times because New Yorkers read it. You pay a premium for reaching this small slice of the audience. Journalism is about making markets, organizing and advocating a market on behalf of readers, selling access to that select audience to advertisers, and creating sales. It’s not about advertising at all, but about extracting value from commerce.

Google, and other search engines, base their business on intrinsic targeting. They follow each user and, based on what they like, try to display ads that will cater to those needs. Intrinsic targeting is much more expensive than extrinsic targeting, there’s a lot more waste, but through scaled computerization the ad rates that fall out are so dirt-cheap that advertisers go with it, and achieve better results than they did before, especially if they then capture data on prospects to their own Web sites and focus future efforts on that captive audience.

AOL didn’t start the fire over journalism, and Fox didn’t start the fire. Those focused on their editorial views are looking in the wrong place. Google started the fire, although historians like myself prefer to say companies like Yahoo (NASDAQ:YHOO) and early web ad agencies like Doubleclick started it.

The hope in all this? Doubleclick founder Kevin Ryan finally left after his company was acquired by Google and now runs Business Insider, a business news site. Maybe he can find a solution to the problem described here. If he can, he’s far more worth following than AOL.

Also see: Amigobulls' AOL stock analysis video for a quick look at AOL's key financials.

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