Comments on: What the Web Is Saying About AOL’s HuffPo Purchase

By: Content Farming: Is Online Media Just a Digital Sweatshop?: Tech News and Analysis «

Mon, 14 Feb 2011 20:06:46 +0000

[...] recent sale of Huffington Post to AOL for $315 million has focused a lot of attention on the economics of online media. Many seem concerned that the sale [...]

By: This Week in Review: AOL’s big HuffPo buy, converging media in Egypt, and waiting on The Daily » Nieman Journalism Lab » Pushing to the Future of Journalism

Fri, 11 Feb 2011 15:02:03 +0000

[...] Mary pass,” as The New Yorker’s Ken Auletta wrote — and reaction on the web (also summed up well by GigaOM’s Mathew Ingram) was decidedly mixed. The thumbs-ups came from a eclectic mix of [...]

By: Content Farms 2.0: Can Robots Help Write the News?: Tech News and Analysis «

Tue, 08 Feb 2011 17:03:06 +0000

[...] recently, and AOL’s leading the charge with its low cost Seed.com service and, arguably, its $315 million buyout of the Huffington Post. Journalists roll their eyes at this stuff, but content farms — for better or worse — are hard [...]

By: Toronto SEO and Marketing Corp.

Toronto SEO and Marketing Corp. — Tue, 08 Feb 2011 02:25:36 +0000

I really liked Huffington’s coverage – hopefully things don’t chance now that Yahoo owns them. It’s good that Arianna Huffington will still be running things. Who can say no to 300 million?

By: KenG

KenG — Mon, 07 Feb 2011 22:44:20 +0000

It’s a good deal for Huffington, but it’s irrelevant for AOL. Or it would be irrelevant if they were paying for it in stock, but instead they are burning up $300M in cash, which they will need at some point soon.

This deal, and AOL in general, demonstrates why companies like Facebook and Twitter are over-valued. They all depend on general web ads, of which there are a seemingly infinite supply. The barrier to entry for creating a website is near zero, and just about any website can sell ads. Now Google and Microsoft (with Bing) at least have an advantage, as search engines provide a perfect audience for advertisers – people who are looking for specific information that they can match their ads with, not just people who happen to stumble on a website with ads on it.

TV and newspapers have finite spaces for placing ads, and if you want to reach viewers of a specific show, you will compete with other advertisers, which drives the price up. If you are just looking for eyeballs on the web, and don’t care about the demographics of the page viewer, the price for advertising will drop as low as the cost of operating websites will allow. Which, when combined not only with the general growth of the web, but also with the flood of new ad-financed websites that are launching every day, will be very low. Low enough that profits will never meet expectations for most websites.

The 90s dotcom crash happened because people believed a business model for running websites would eventually appear, but it didn’t materialize in time for many of them. A business model did eventually show up, but the more companies deploy it, the less it is worth. AOL can generate revenue from all of the content it owns, but whether there will be enough profit left over to justify the valuation they want is another story (most likely a sob story).