AOL to Sell or Shutter 30% of Patch Sites

Patch logoThere was much discussion of Patch on AOL’s recent earnings call. CEO Tim Armstrong said AOL remains “fully committed” to Patch but also announced more changes, including the closure or sale of failing Patch sites (the “bottom third”) and significant, additional cost reductions over the entire operation.

There are roughly 900 Patch sites currently in the network. Here are some relevant excerpts from the earnings call:

We have segmented all the Patches into 3 buckets. The first bucket is establish in successful Patches; the second bucket is emerging Patches that have all the signs and signals of being successful; and the third bucket is set up Patches that may have traffic or revenue traction but don’t have both. And we have operations there that need improvement.

Each segment has a specific strategy broken out by DMA. There are a set of DMAs that AOL will operate, and there’s going to be a set of DMAs that we will auction into partnerships or potentially exit. At the same time, we will continue to decrease the cost structure of Patch. We have decreased the cost structure of Patch roughly 25% already this year. And we would expect to remove more costs out of Patch going forward.

Armstrong promised investors that Patch sites will be profitable on a run-rate basis “by the end of the year.” One of the financial analysts quoted a $150K overhead figure per site and Armstrong said that was somewhat dated, but that surviving Patch sites would be operated at a number “much much lower”  than that.

Armstrong also argued that the Patch network overall had seen strong traffic growth: “I think it’s the largest, highest external traffic property we have as a business in terms of percentages of external traffic.”

I’m sure there are isolated successful Patch properties that fill a local news void (300 allegedly have strong traffic and revenue). However in order to succeed Patch needed to establish a brand (at least over time) and be a destination — not merely rank for “hyper-local” keywords.

Given the current state of Patch it’s not clear to me how the property will succeed over the long term. Patch expanded too quickly without working on “the model” and getting a formula right in a few markets and then translating that across the country.

The assumption was (and remains) that Patch is filling a void in the market and thus consumers would and will necessarily flock to it. So-called “hyper-local” news is very tricky. However I have always believed that Patch had to establish a “brand” and become a go-to site for community news and engagement. It has not, for the most part, done that.

What do you believe will be the ultimate fate of Patch: closure or a patchwork of profitable sites run on a shoestring, mostly with free user-contributed content?

One additional idea: AOL buys community based social network Nextdoor and merges it with Patch to create a mix of community news and social networking, combined with a marketplace.

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6 Responses to “AOL to Sell or Shutter 30% of Patch Sites”

  1. Local Dude says at

    Well that didnt take long – was wondering who was going to recommend Patch buying Nextdoor!

    FYI, Nextdoor doesnt have a biz model either. More importantly just beginning on mobile and team there has minimal mobile experience. So what exactly are they buying?? A good scaling execution? (Which patch definitely needs)

  2. Greg Sterling says at

    Nextdoor would complement Patch’s news. Ultimately the model is a mix of advertising and classifieds local selling. But engagement and scale are critical. Nextdoor would provide more engagement to Patch. 

  3. Local Dude says at

    If anything Nextdoor’s engagement has been proven at minimal scale. So how does mixing the two help? Also what is the basis for Nextdoor’s engagement other than the company’s PR?

    Least but most important is that Patch has already botched up the outside.in acquisition not to mention the hipster acquisition for mobile (yet there isnt a credible mobile/tablet presence) so what makes you think this one is going to make sense?

  4. Greg Sterling says at

    Those whole thing might well fail. But I think Patch is on a course to fail now. Buying Nextdoor would be a risk of course. The company could also see to expand Patch into a more of a social network as a kind of “pivot” and simply try and duplicate Nextdoor’s capabilities and engagement. However execution might prove difficult

  5. Local Dude says at

    From the comments on this post http://jimromenesko.com/2013/08/09/patch-staffers-will-be-laid-off-and-sites-closed-over-the-next-7-days/#respond

    Examiner is doing much more with a limited staff. Never understood why they closed down the aggregated content with outside.in

    They are bound to fail until they recognize that their model is screwed up. They need editors (which they could have layered on top of outside.in content) not reporters till they achieve scale.

    The native advertising experiment as a patch town for disney – Obviously conceived by an MBA with no clue about hyperlocal or local. They are better off firing this person that created this native ad product if they are serious of recovery.

  6. Greg says at

    I don’t really like Examiner. Basically these are all SEO plays that will have to develop higher quality content and destination brands or die as Google continues to starve them of traffic 

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