There 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.