OH Yeah...Well, Take THAT Martha Stewart
http://pd.gophercentral.com/u/2047/c/186/a/618
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Wednesday, February 16, 2011
AOL's Huffington Post Acquisition: An Epic Fail
By Jaffer Ali
Huffington's apparent interest in real journalism is
fundamentally at odds with AOL's desire to mass-produce
profitable content. The only way to reconcile these
apparent conflicts is with the understanding that most
of what Armstrong and Huffington have stated publicly
and to their respective constituencies is just fluff.
? Patricio Robles, Econsultancy
While I agree with the above sentiment, I believe the
acquisition of HuffPo by AOL fails on an additional, more
existential level. The defective meme in AOL's strategy is
one that overwhelmingly believes that the road to riches
is to scale supply.
What?
I know that most people believe in the notion that adding
MORE SKUs if you are a retailer...adding MORE content if
you are a publisher...adding MORE choices within your
business model is a solid strategy. But it simply isn't.
Let me explain why.
The real "paradox of choice" http://bit.ly/gwQRyb regarding
business models has little to do with Barry Schwartz's
insightful thesis that more choice leads to less happiness.
A simple business principle suggests that scaling choice
before you have figured out how to monetize what you have
is a recipe for disaster. The increasingly crowded auto-
motive field offers a clear case in point, to wit GM will
make more revenue this year with four brands than it made
last year with eight brands.
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Let's explore what I mean a little further. AOL has amassed
considerable eyeballs. Yet it's safe to say that the recent
announcement that their decline in display advertising of
23% in last year's 4Q was caused by one or both of the
following:
1) They cannot properly monetize the eyeballs presently
under their control
2) They are experiencing a precipitous decline in eyeballs.
By attempting to scale a virtually limitless supply instead
of addressing a finite consumer demand ? there is only so
much time and only so many eyeballs to go around - AOL is
spending their time and money on the wrong end of the
equation. MORE content...MORE choice does not necessarily
make a better business model. And in AOL's case, they just
spent $300 million in cash because they are looking for
love in all the wrong places.
Why does the Super Bowl reach 100 million viewers, when
the same time period on the same channel the night before
reaches only 2 million viewers? It's not as if there are
fewer channel choices on a single Sunday in February. It's
not as if the Internet shuts down for the day. The reason
the Super Bowl reaches 100 million viewers is because
it only happens once a year ? the ultimate illustration
of limited choice producing greater scale. It's the same
reason why 60 million viewers tuned in to the Beverly
Hillbillies each week in the 1960s when there were basic-
ally only three commercial channels to choose among on
television.
A business model that has good content in limited quantit-
ies and can scale reduced choice is the model to chase.
More and bigger is not better...better is better. I wrote
about this in "Choice and Scale" http://bit.ly/hNAKuC but
the thesis is worth repeating here. If what you are doing
is not working, doing MORE of that is not a way out. The
aphorism, "if you want to get out of a hole, stop digging"
is operative, as is Albert Einstein's sage observation
that "No problem can be solved from the same level of
consciousness that created it."
But Armstrong and company keep shoveling just the same.
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