16 Comments

Summary:

From the minute I heard that Time Warner bought Bebo for $850 million, I thought it was a bad idea which would hurt the company long term. At the very least, that money could now have been used to build a whole new AOL.

When Time Warner spent a whopping $850 million dollars to buy Bebo, an also-ran social network, back in March 2009, I wrote: “Given Time Warner’s history of messing up everything it buys, I wonder how long before Bebo becomes Beb-oh!”

Now comes word that AOL is getting rid of Bebo, and may have sold it to a private capital investor for somewhere between $2.5 million and $10 million. That would put it in the same category as The New York Yankees’ $39.5 million deal with pitcher Carl Pavano — hope and hype that ended in heartburn.

If the reports are indeed true, Randy’s Folly cost the company a whopping $840 million of much needed cash. Randy being Randy Falco, the clueless executive who took AOL to the brink of extinction before someone woke up and brought in Tim Armstrong to make a miracle.

Armstrong is trying to move AOL away from its access-centric revenue stream by building a content-centric company. Thanks to the acquisition of Weblogs Inc. (way back when), AOL now sits on a gold mine of web brands, Engadget being the most well known. The company has also embarked on an expansive and ambitious strategy with new programs like Seed.

At the D8 conference, when Armstrong was asked “What is the future of the company?”  he replied, “If I had to describe it in one word, I think it’s content, and I think it’s content because there’s an opportunity to marry what the content’s already done with what the content can do.” Given that I’ve viewed AOL’s content strategy over the past year and a half as a smart one, I can’t say I disagree with Armstrong’s approach.

We are in the middle of a big media shift, which means some of the traditional brands are going to fall by the wayside. New ones will emerge. AOL can be home to many of them — whether they’re homegrown or come via a shopping spree.

As I have often said, we’ve entered an era of too much data (including news). From this data we need to derive information, and to this information we need to offer context. That context is social and local. These are not easy tasks, mind you; they require the resources of a technology company — and thankfully AOL has plenty of those.

This is precisely the time AOL should be making aggressive acquisitions — not Associated Content, but companies like Foursquare and Gowalla — and use them to build a new class of “media entities” that revolve around location and social. As I wrote earlier, I see such services as the next iteration of gourmet magazines and retail guides. They can also help AOL realize its local ambitions.

Just as back in the day, AOL viewed weblogs as a new media entity,  Armstrong must peer into the future and rethink what media is, including getting rid of notions such as content created by content farms such as Associated Content. It should also explore a new opportunity being tapped certain startups: the marriage of content and commerce sans traditional advertising.  Good examples include New York-based Thrillist, which bought JackThreads and San Francisco’s women-oriented content company, Sugar Inc., which in turn bought FreshGuide. In a world awash with cheap page views, it’s the premium experiences that result in premium advertising dollars and commerce-related revenues.

But thanks, in part, to Bebo, AOL doesn’t have a lot of cash on hand — roughly $262 million — which limits what Armstrong can do. Now imagine if Armstrong had that $840 million that was wasted on buying Bebo back in his coffers; he could easily go about building a brand-new AOL. Instead he needs to take measured steps and worry about paying the price of someone else’s stupidity.

OMG Beb-oh!
Photo from the Archives: Randy Falco, former Chairman and CEO of AOL, Joanna Shields, former President of Bebo, and Ron Grant, ex-President and COO of AOL. ( Via Business Wire)

This article also appeared on BusinessWeek.com

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  1. My Locator ® Wednesday, June 16, 2010

    Content is overrated. The trick is to be the best social destination “utility bridge” to locate it. Engagement is everything.

    1. I completely disagree with the phrase “engagement is everything.” Engagement might be a key factor in items like facebook and Twitter; however, let’s face it AOL won’t be touching that giant anytime soon. Quality content that the reader can use to make their lives better is what ultimately matters.

      Look at Gigaom. It is infrequent that you see the comment nonsense and numbers like TechCrunch or Engadget. People come here for Om, his knowledge and his teams ability to put together a quality product. My .02: engagement is a pipe dream, quality is the true king.

      1. @braden

        THanks for your kind comments and your faith in our team. Indeed quality is king, and thanks for your words of encouragement.

        All your points are very valid, though I would consider what you and I are doing qualifies as “engagement” as well. The only difference is ours is an old-fashioned one on one, while the new new engagement is around the ephemeral concepts of social media.

        AOL isn’t trying to be Facebook or Twitter. It has decided that it can be a good Internet-media company. It is a smaller mission but with a potential upside. Why: because the old world is going to tumble and someone will arise and they have as much a shot as anyone else.

    2. I am trying to understand your point — but it is a little abstract. Would you care to elaborate?

  2. Go back and edit – you missed a (LINK)

  3. wow.. bought for $850 million and sold for $10 million… what a waste.

  4. om,
    It is difficult to build a big business around content.

    AOL will be acquired by Yahoo or Microsoft in the next 12 months.

    1. I wouldn’t rule out Microsoft but Yahoo :-) come on, those guys have their own problems.

      1. @Om, Yahoo has “their own problems.” Too right; they’ve been trying to trim a hangnail by cutting off progressively larger pieces of their leg for at least the last five years. But we all know this.

        Rather than Yahoo acquiring anybody, I see an old-media company (NYT? Probably/hopefully not News Corpse?) buying Yahoo and putting current mismanagement out of our misery.

        So if MSFT buy themselves a halfway-credible media company (AOL) and a halfway-credible media company like the NYT buys Yahoo, things could get interesting again. Until at least one of them screws up; they always do. Though if they both auger in reasonably contemporaneously it could still be fun, in a look-at-the-hypersonic-train-wreck kind of way. (Just don’t get too close to the event; geosynch orbit might be a safe vantage point.)

  5. Question is:

    Would Tim A. run AOL if they had kept the 850m?

    I don’t think so. Most companies haven’t grasped what you say.

    “From this data we need to derive information, and to this information we need to offer context. That context is social and local.”

    Even tech companies, see Hunch, are struggling with this. To provide quality organization they have to base it in on “local”, means personal organization. The times of generalized organization of data (anonymous) is coming to an end, we have the computing power to become more and more personal.

    This becomes clear if one tries to compute the “information value” of any given article. Which differentiates from reader to reader based on other articles read and history (memory) and how it’s organized(context). Means also writing articles like it’s the 20th century to satisfy Google(generalized search), will not lead to success (IMHO).

    Minor quibble: One can not have information without context. Think about a baby, is that brain organizing data into context or does it information processing? Meaning we have to have context to processes information.

    1. Ronald

      Good to hear from you.

      On your minor quibble first: look at the information — twitter updates and blogs that are proliferating now — it is information without context. news without context. comments without context. I think we are essentially talking about the same thing.

      PS Maybe Tim should hire you as an adviser. I know I would. :-)

  6. “From this data we need to derive information, and to this information we need to offer context.” et voila –> engagement.

    what a great set of words to describe whats required for an internet media/content company.

    @ronald context operating on data delivers information. tweets are merely naked data without context and thus not ‘information’

    1. Rohit

      You and I have discussed this many times. Also, @ronald is one of us — thinking along those likes.

    2. How does “context operating” work?

      I define context as organized data. And learning as the self organization of data, which creates context. Information as data in context. Models can be used to explain why newborns can not learn from negative feedback and some brain diseases and mental illnesses.

      If you take a look a the 10b problem (neurons), we have:
      Frequency of firing
      Stochastic behavior
      Fatigue
      Myelin sheath

      Now if we expand that to a more 21th century 100t problem (BAC), we have dentrite as part of the calculation.

      I don’t not see how “context operating” works. Or what is the base to make it work. If context is the base data organization, one can put a tweet into ones own context. Which might be right or wrong and if one does not understand it it’s because one has no context. In general as less one knows about the sender, and or situation (including mental state, since there can be a shared context) the tweet was send in as less information one gets out of it.

      Long story short, understanding requires context like information processing. One needs a model which covers all.

      1. @Ronald, absolutely agreed that “[one] needs a model which covers all;” I think that’s a good definition of the Holy Grail for the first quarter of this century. (By which time, I expect we’ll either have the problem sorted or we’ll have latched onto something more immediately urgent as the Next Big Thing to Crack.)

        Context operating can’t work the same way for any two different observers; it’s a restatement of the Schrödinger’s Cat problem. Companies that try to force a synthetic amalgam of context from a “neutral” standpoint are going to become less effective as access to data becomes cheaper and more widespread. Which leaves companies trying to monetize context with a dilemma: they can either try to accommodate the unique set of contexts in which each observer finds themselves, or they can explicitly say “We know you’re looking at this from a specific context that may appear to invalidate any subset of our assumptions; even so, here’s a set of tools you can use to build common contextual experiences with others who are interested in/affected by the same data.” “Building common contextual experiences” used to be called ‘pedagogy’ and ‘socialization.’ I believe those are what must be mastered — quickly — if we as a species are to see the next century.

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