Today, AOL has mostly bounced back and its CEO Tim Armstrong, who survived an ugly proxy fight last year, seems to feel vindicated. At the Paley Center for Media in New York on Thursday morning, he explained why he bet on a content strategy to turn the company around.

“Silicon Valley is a pig pile ..  Everyone is putting out the same services, the devices have become more commoditized and the platforms are the same,” said Armstrong. He added that, over time, content is what will differentiate the platforms and that AOL’s strategy is to be the content “arms dealer to Silicon Valley.”

To achieve this, AOL is pushing forward with an expensive video strategy that involves, in large part, turning the Huffington Post Live into a new type of cable channel. Armstrong says he sees AOL’s video ambitions as a “Clay Christensen type disruption” and that its potential will only expand as mobile technology improves. He added that AOL will also rely on its cable partnerships to feed the appetite for content.

Armstrong also addressed the future of Patch, AOL’s network of hyper-local sites that have lost a spectacular amount of money and been a punching bag for shareholders and media pundits. He acknowledged that “there’s a lot of dead soldiers on the local hill” and that other efforts, like NBC’s EveryBlock, have flamed out. But he thinks Patch still has a chance.

“The journalism world pounds on Patch,” said Armstrong, but pointed out that the sites have become a fixture of hundreds of local communities and that Patch’s viability should be seen through a long lens. He added that Patch reaches nine percent of the US population but also 20 percent of the country’s commercial markets, and that the sites will be profitable by the end of the year.

In response to a query if AOL’s content appetite might include Time Warner’s magazine empire which is now for sale, Armstrong demurred. “I’m a fan of the brands,” he said, but added that the economics for such a deal wouldn’t work.

AOL’s current feel-good moment is reflected in its share price which is outpacing other media companies and the stock market as a whole (red line is the overall Dow index):

Despite Armstrong’s optimism, however, there are still plenty of reasons to be cautious about AOL. The stock’s high-flying performance is driven in part by a billion dollar patent sale and, for now, AOL still has to prove that it can make its content and ad units profitable. As Henry Blodget pointed out last month, AOL’s revenues may be growing for the first time in eight years but nearly all of its profits continue to come from selling copper wire internet connections to dial-up subscribers.

(Image by EDHAR via Shutterstock)

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At first glance, it might not look like Nextdoor and Patch are even in the same game: after all, Nextdoor describes itself as “the private social network for your neighborhood,” while AOL has always described Patch as a source of news and information, more like a community newspaper. But when it comes right down to it, these are really just two different ways of looking at the same problem: how to get important information about a community to the residents who care most about that information — whether it’s school closings or local government ineptitude or criminal activity.

Blurring the line between news and social network

That kind of content has always been the core of what small town and community-level newspapers have done, and the best ones have been similar to a social network in many ways as well — in the sense that readers pay more attention to the birth and death notices and the letters to the editor than they do to the actual “news.”

This is the goal that EveryBlock was going after, first as a data-driven startup launched by programmer/journalist Adrian Holovaty with a grant from the Knight Foundation, and then as a subsidiary of NBC after it was acquired in 2009. In 2011, the service added a lot more human-powered and community features — which Holovaty said he had come to believe were crucial for such a network to succeed — but it wasn’t enough to keep the service afloat.

Patch recently did something similar: instead of relying exclusively on journalists, it is opening up the service in an attempt to make it more of a community noticeboard. The main goal seems to be to cut the costs of the network, which AOL has poured more than $150 million into. According to comments made during its latest conference call with analysts, Patch is doing well — but it is still well short of the revenue targets that AOL chief executive Tim Armstrong has repeatedly promised to hit.

Instead of starting with the news and then trying to add social-networking aspects later, Nextdoor started with the social networking side: the idea behind the service is that you and your neighbors need a place to talk about those school closings or crime reports or even where to find a good mechanic or babysitter, and doing it on Facebook or Twitter or another public network isn’t appealing for a variety of reasons, including privacy concerns.

High barriers to entry improve the signal

So what Nextdoor does is make it as difficult as possible to join — the exact opposite of what Facebook and even Patch try to do. Only people who actually live in a specific neighborhood can join the Nextdoor network for that area, and the service doesn’t just accept your word: it verifies it by checking your credit-card information, calling your home phone or sending a postcard directly to your house with a special registration code on it.

Nextdoor CEO Nirav Tolia says the company is sending out about 15,000 of these postcards every day, and admits that the service builds in “a lot of friction to join” the network.

In part because of Facebook, we are used to thinking of social networks as being more powerful the more open they are, but in the case of Nextdoor the private and restricted nature of the network could be its biggest strength — and it’s almost certainly why David Sze of Greylock, an early investor in LinkedIn, was interested in the company. In many ways, Nextdoor is like a LinkedIn for your neighborhood, but even more restrictive: so if you are interacting with someone on the site, you have a high degree of confidence that what they say is going to be relevant to you.

When it comes to monetization, Nextdoor and its backers say there are some fairly obvious advertising or e-commerce tie-ins to such local content — and given the network’s focus on keeping the signal-to-noise ratio high, an argument could be made that it is more likely to succeed at this strategy than either Patch or the existing hyperlocal media players (newspapers, etc.) in those regions. Nextdoor says it has doubled in size in the last six months and now covers over 8,000 neighborhoods in all 50 states.

Images courtesy of Flickr users Jason Parks and Pew Center

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Then something happened. The company’s revenues grew, its share price soared and CEO Tim Armstrong revealed a strategy to make AOL a media and advertising powerhouse. The company’s winning streak continued Friday morning as Wall Street greeted AOL’s latest earnings report with glee; the stock shot up another 12 percent when markets opened.

“We’ve walked through the the value of the turnaround and got to growth,” Armstrong said on a morning call with investors.

It’s too soon to say the company’s back on top but, for now, the results look like the real deal. Here’s why: as analysts fussed over AOL’s debacle with hyper-local site Patch and its dwindling dial-up business, the company quietly invested in state-of-the-art ad technology and rejigged AOL to inject new revenue streams. The most important of these are inside the AOL Networks group — a business unit that offers ad tech tools to publishers and advertising agencies that are still learning to navigate the world of automated ad buying. The Networks group grew 37 percent year-over-year and posted revenue of $183.5 million in Q4. (Total revenue for AOL in the quarter was up 4% from a year ago to $599 million; adjusted OIBDA income was down 7% to $123 million).

During this time, AOL has also become number two in online video thanks to products like HuffPo Live; this is significant because video is one of the most lucrative forms of online advertising. AOL now plans to draw on its fancy ad tools to create automated buying for its own video inventory while, at the same time, offering those tools to other companies who are still catching up on the video front.

Meanwhile, AOL’s media properties don’t look as dysfunctional as they did a year ago. Armstrong appears to have figured out how to manage the mercurial Arianna Huffington and, as for his pet project Patch, the hyper-local site is still losing money but he promises it will be profitable by the end of  the year.

The bottom line is that AOL has three major revenue streams, all of which look viable. There are still danger signs, of course: AOL’s display ad business looks shaky and, as Henry Blodget points out, the company’s revenues may come from three streams but nearly all of the profit is still coming from the legacy subscriber businesses.

But, for now, investors are right to like what they see. People looking for 2013′s turnaround story should stop fussing over Yahoo — it’s AOL that is poised to be this year’s comeback kid.

Correction: an earlier version misstated the sale of AOL’s patents; this has been corrected to say the patents were sold to Microsoft (which in turn sold them to Facebook).

Disclosure: GigaOM distributes some video content through AOL.

(Image by Rob Hainer via Shutterstock)

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Redesigned Patch mobile website (a redesigned app is coming in November).

This is the change that Aol CEO Tim Armstrong mentioned in Aol’s second-quarter earnings report in July. “When you see it, you’ll understand,” Armstrong said of Patch’s redesign at the time. While the changes seem like a good step toward turning Patch into an actual community hub, though, whether it actually becomes one relies on the users. And it’s unclear at the moment whether they’ll find enough at the new Patch to switch from the services like Facebook that they are already using every day.

Patch editors are still writing editorial content, which is featured at the top of each page, but they’re taking a less central role.

Patch is “one click to manage your life,” chief content officer Rachel Feddersen, who joined the company in claimed. But as Patch places more focus on social networking, can it really compete with Facebook, or more established local listings services like Yelp? The site’s redesigned mobile app is coming in November (and the company says that Patch’s mobile website works well now). AOL is hoping that users will come for “the news of the town,” in Federson’s words, and then stay to create groups and communicate with other members.

As for the third part of Patch’s goal — commerce — it’s not here yet. Brod said the company is working on “a number of initiatives” but can’t go into detail, though Tim Armstrong told AdAge in July that Patch will start offering local listings at some point.

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Facebook Stories will curate content around a monthly theme. This month, the theme is “memories” and the content includes a video report about a man who lost his memory when he got meningitis and a news story about a group of Ontario residents who used a Facebook page to help save the local Petrie Building.

In addition, each issue of Facebook Stories will have regular features: The Bookshelf has “a Goodreads list of books that helps you dig deeper into each month’s theme,” while “Playlist” curates songs from Spotify. And “Reading List” includes “exclusive access to the archives of some of the world’s best storytellers.” This month, three pieces from the New Yorker — stories that are normally available only to subscribers — are included. Facebook is also running a monthly Stories podcast, and a monthly infographic focuses on the issue’s theme. This month, it analyzes how people around the world share “life’s biggest moments.” Users are invited to share their own stories, which might be included in a future issue.

The Facebook design team’s Skip Bronkie and Peter Jordan are leading the project. Dan Fletcher, who was hired as Facebook’s managing editor in January 2012 and was previously a reporter at Time magazine, is editing and vetting stories from users. He also wrote the “Guelph, Ontario: Saving a Slice of Downtown” story in this month’s issue. Other team members include Allie Townsend, formerly Time‘s social media producer; editorial producer Jeffrey Gerson; Matthew Harnack and Mandy Zibart.

This is only the first issue of Facebook Stories, but there are a number of paths that it could take. Facebook spokesman Bounds warned against interpreting this as a competitor to other news sites, though. “The Facebook Stories site is designed to work with media partners and contributors who are providing us original content,” he told me, “and we are helping showcase their content in the context of unique user stories that we’re discovering on Facebook.”

Still, Facebook Stories’ geographic focus — you can click on “Map” to see the stories arranged on a world map — hints that it could be a possible competitor to AOL’s Patch, though if each local story is required to have a Facebook angle, that concept could wear thin. Its mosaic layout is tablet-friendly and already makes it look a bit like personalized iPad magazine Flipboard or Zite. Then there’s the aggregated content from the New Yorker, and the original content from people like NPR’s White House correspondent Ari Shapiro – a combo with hints of Daily Beast or Huffington Post. A tablet magazine consisting of user-generated local content, aggregated content and original content is an ambitious move — but it seems possible when you consider that such a magazine could have over a billion readers.

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The real-estate blog Curbed and its sister food and shopping sites, Eater and Racked appear to be bucking that trend.  The sites, which are owned by Lockhart Steele, cater to local audiences looking for buildings, restaurants or sales. How has he made local pay when others like AOL’s hyper-local network, Patch, have flopped?

“It’s a little counterintuitive. We’re a local company that’s not really interested in local advertising,” says Steele, explaining that the sites’ primary sponsors are national brands with big ad budgets like Ben & Jerry’s or Absolut Vodka.

Steele says big brands use Curbed to tap into local communities of shoppers, foodies or home buyers in different regions. He cites a recent example in which Curbed threw a party in Portland on behalf of Patron Tequila. “We can activate audiences in each of these cities we’re in, and activate a real community.”

Steele says there simply isn’t enough money in local advertising – with one exception. “The one place you can sell local is real estate … It’s the only category of hyper-local that’s really flush with money.”

The Mobile Morass: it’s ok to sit on the sidelines

Publishers are watching with growing consternation as audiences are moving en masse to mobile devices but ad dollars are not. Steele admits he doesn’t know how or when the mobile riddle will be solved but says he is not concerned.

Steele says it’s unrealistic to expect readers to download a publisher’s app unless you offer “non-stop engagement like Netflix” and adds that apps “create another distracting channel that you have to worry about.” He says Curbed is content to watch the mobile experiments of companies like Conde Naste which have been more bullish about apps.

“A lot of interesting start-ups in the digital media space are sitting on the sidelines .. We’re happy  to see big guys throw around hundreds of thousands on development. We’ll keep our powder try and watch others. If someone hits on the right strategy, we’re not above copying it.” In the meantime, Curbed is content to look for niche mobile opportunities like email newsletters and monetizing the screen that launches when a reader first downloads an app.

Why blogs are beautiful & Gawker’s still got it

Steele says his favorite sites are those that use a traditional blog layout like the Awl or Andrew Sullivan. He believes in a format that lets readers “scroll down and know when they’re full,” versus busy homepages like New York magazine which Steele describes as “seizure-inducing” (though he loves NY mag’s content).

Does he still follow Nick Denton, his former mentor and boss at Gawker, where Steele was the gossip site’s longtime managing editor?

“I still think Nick is one of the most interesting people in media. When it comes to product vision in this media space … I think Nick is pushing forward some of the most interesting ideas,” he said, citing Gawker’s recent attempt to transform the idea of reader comments.

Who else? Steele calls Jim Bankoff and Vox Media the “standard bearer for the media space,” He says sites like Vox Media’s The Verge are “the most beautiful on the web” for their seamless integration of text, audio and video.

Display ads are the Future

No really. While prominent display skeptics like BuzzMedia’s Jonah Peretti claim that banners (those ads that stretch across the top and side of web pages) belong to an earlier era of web publishing, Steele disagrees. “Display advertising is the future. Part of the reason is that display is also the past – people made fun of banners when they debuted on Hotwire in 1995.”

Steele’s point is that display advertising is a staple of the internet economy that publishers and advertisers now know how to buy, use and sell. He says companies continue to see these ads as powerful opportunities to build brand image. This is different than revenue from “click-through” ads about which “no one has illusions.”

To make display advertising work, Steele says, it’s important to keep ad sales in-house. “Giving inventory to ad networks puts you in a world of spiraling CPM’s.”

New York is tech and San Francisco is media (and vice versa)

“The old idea that New York created media and San Francisco created great product is out the window,” says Steele, citing Foursquare, the popular location-based social network, which long shared a roof with Curbed. He believes both cities are pushing each other to improve media platforms and publications. But that doesn’t mean he likes them equally.

“I’m a tried and true New Yorker. If lived in San Francisco, I’d have to kill myself. Other than that it’s a great city.”

(Images by Etienne Volschenk, Kiselev Andrey Valerevich and upthebanner via Shutterstock; L. Steele image via Flickr)

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We do — that was that state of digital media when paidContent launched in 2002. Other weird things were happening back then too: People still got much of their news from television and newspapers, and they learned about major events after they had already happened.

There have been some huge shifts since 2002: Tablets and smartphones are now ubiquitous, lots of people read on their digital devices, and just about everyone is part of a social network or three. This summer is the tenth anniversary of our launch. In an effort to gain some perspective on the past decade in digital media, I’ve been reading back through paidContent’s archives — a collection of over 80,000 posts.

Since I was only a freshman in college when paidContent came to life, I often didn’t know, as I read through the stories from the early days, how things had begun or how they turned out. As I watched them unfold, I wanted to grab our readers’ arms and give them advice (“Don’t buy that Zune!” “Invest in Facebook!” “Go for the good Twitter handle now!”). But I also realized how difficult it is to predict success.

Some takeaways from my trip through the archives:  Some companies — AOL and Yahoo come to mind — have been consistently bad at predicting what consumers want. And a couple of companies, namely Apple and Amazon, have been very good at it. Also, being a native digital company helps, but it’s no guarantee of success (what up, MySpace?). And after all these years, it’s still not clear what content customers will pay for, or how much they’ll pay.

Streaming and Moviebeaming

What do analysts, CEOs and bloggers have in common? None of us can predict the future. Roger Ebert joked in 2002 that “on-demand streaming movies on the Web, like HDTV, are five years in the future — and will be for at least another 10 years.”

If Disney’s Moviebeam had been the only game in town, Ebert probably would have been right. When it launched in three cities in 2003, customers paid $6.99 a month to use a device that could hold 100 movies and plugged into the back of a TV set. They also had to pay for each movie they watched– billing was done via the phone line. The company went through various unsuccessful iterations before India’s Valuable Group bought it in 2008. It was never heard from again.

Netflix almost went down the same road. It had a plan to release a Moviebeam-like “proprietary set-top box with an Internet connection that could download movies overnight.” But instead, it decided to forge ahead with streaming — starting with a complicated “quota hours” system in 2007 and moving to unlimited streaming in 2008. By 2010, the majority of subscribers were streaming something, and the company began offering streaming-only subscriptions, though CEO Reed Hastings said that same year that the company would keep shipping DVDs until 2030. (We’ll see about that.)

ABC was the first network to sell episodes of its shows on iTunes, back in 2006, and to stream shows free with ads on ABC.com — and later on AOL. But by the time premium subscription service Hulu Plus launched in 2010, the platforms getting the attention were devices with built-in access, like Internet-enabled TVs, Blu-ray players, and tablets.

Return of the living dead

Speaking of AOL: It’s something of a miracle that the company still exists. In 2000, when it merged with Time Warner, it was valued at $350 billion, and the next year, more than 24 million people in the U.S. were paying for its Internet access service. By the end of last year, that number had dwindled to just 3.3 million subscribers. Here’s a quick recap of some of AOL’s miscues over the years:

• AOL Voicemail ($5.95 per month)
• A teen service called Red (featuring “a talking head—using the image of an actual employee—that uses software to answer users’ questions”)
• A digital music partnership with Burger King
• A reality show called “Gold Rush”
• Social networking site AIM Pages
• Going free
• The hyperlocal Patch blogs

Though AOL was once a high flier, no other company ever liked it quite enough to buy it. Google bought a five-percent, $1 billion stake in AOL in 2005, leading analysts to wonder if Microsoft missed out. That resulted in a $726 million writedown in 2009. Time Warner bought back Google’s stake and finally spun off “the albatross” in December 2009.  AOL is still promising a bounceback. “The executive team expects a profitable content business by next year,” CEO Tim Armstrong said in May 2011.

Yahoo hasn’t fared much better. The company launched Yahoo Platinum in 2003; for $9.95 a month, subscribers got access to audio and videos.  The program was dead by October of that same year. It later tried a Twitter-wannabe microblogging service (“Meme…where you share everything that you find that’s interesting,”). Perhaps the smartest move Yahoo ever made was not buying AOL.

Where did these companies go wrong? In 2010, former Time Warner CEO Gerald Levin pondered that question in an interview with the New York Times . The AOL-Time Warner deal was “undone by the Internet itself,” he said. “I think it’s something that no one could have foreseen, and to this day, whether Apple is going to dominate entertainment or whether Amazon is going to dominate publishing, all the old business plans are out the window. How do you get paid for content?”

Know what’s cool? A billion dollars

In 2006, an RBC Capital analyst estimated that a certain social networking company would be worth $15 billion in a few years, based on “raw, unprecedented user/usage growth.”

Six years later, Facebook went public with a valuation of $104 billion. Too bad the analyst wasn’t talking about Facebook but about MySpace. The social networking company that Rupert Murdoch acquired for $580 million in 2005 sold for just $35 million in 2011.

Why did Facebook soar while MySpace — and other social networking services like Friendster — sank? It allowed people to build real connections using their actual personal information, and rolled out a product that was ready to scale and had good technology. Other companies realized sharing was important too — in 2005, Yahoo SVP Jeff Weiner called sharing “the next chapter of the World Wide Web” — but Facebook was able to implement it in a way that kept users coming back. The site surpassed Yahoo and AOL for “stickiness” in 2009, when Nielsen found users spending an average of four hours and thirty-nine minutes a month on Facebook.

Social has already disrupted some industries — witness the rise of Twitter and the way it has changed the way news is reported, with stories like Osama Bin Laden’s assassination breaking there first. In a sign of the importance of these emerging platforms, newspapers like the Wall Street Journal and New York Times are launching “Everywhere” initiatives to deliver news to readers where they are already hanging out.

Fast food and music don’t mix

Hard to believe it now, but there was real skepticism that iTunes’ 99-cent songs would be able to compete with peer-to-peer file-sharing services. “According to academics who’ve studied the economics of digital music distribution,” we wrote in 2003, the year iTunes launched, “the cost still seems too high to attract users of peer-to-peer file trading services.” The piece cited an economist who believed “the appropriate price of a downloaded song is 18 cents.” In fact, Real Networks dropped its song prices to $0.49 in an attempt to compete against Apple.

In the end, consumers choose selection and convenience over P2P networks. We called iTunes “a kickstart for the micropayments industry.” Was it? While Steve Jobs said in 2004 that Apple wouldn’t hit its one-year, 100 million songs downloaded goal, global digital music sales crossed $1.1 billion in 2006. In April 2008, Apple surpassed Walmart  as the largest music seller in the United States.

The company that arguably started the digital music revolution — Napster — didn’t survive. Once it no longer offered “free,” it was done, though it tried to reincarnate itself: launching a mobile music service, “Napster To Go,” with AT&T in 2004 (the one smartphone that supported it could hold up to 6 songs), partnering with Circuit City on a digital music store, getting itself acquired by Best Buy in 2008 ,and then being bought back by Rhapsody in 2011. Unfortunately, Rhapsody was already losing out to newer (and free) streaming services like Pandora and Spotify.

The partnerships with Circuit City and Best Buy, though, were probably the kiss of death. One of the big trends of the past 10 years has been brick-and-mortar retail stores’ consistent failure to compete effectively against digital-native companies. Best Buy wasn’t the only retailer to try to crack the digital-content business — and fail: Target and Sears both took a shot. And McDonald’s sold digital content over its WiFi network and even tried DVD rentals in its restaurants.

Do you like the feel of paper?

Just as digital music didn’t really take off until Apple introduced the iPod, the ebook revolution didn’t take place until the arrival of the Kindle. In paidContent’s early years, ebooks were written off as a failure in part because publishers couldn’t figure out what to do with DRM. (In 2003, “temporary electronic ink” that would disappear after a few months was floated as a possible solution.) Barnes & Noble decided to stop selling ebooks in 2003, and Yahoo stopped selling them in 2004.

Meanwhile, Amazon and Google were pushing forward. Google launched Google Print – now called Google Book Search, and still besieged by lawsuits seven years later. Amazon tested two now-defunct programs: Amazon Pages, which allowed customers to buy access to digital copies of select pages from books, and Amazon Upgrade, which bundled print books with online access to the complete work.

Customers weren’t biting. Then Amazon came out with the Kindle in 2007 for $399. Less than two years later, Amazon was selling more Kindle books than print books, and ebooks now make up over 20 percent of some big-six publishers’ sales. Barnes & Noble has had some success with its Nook e-reader and digital bookstore, but bankrupt Borders shuttered all its stores in 2011. Meanwhile, the Department of Justice suit against Apple and five big publishers for allegedly colluding to set e-book prices drags on.

Good thing Steve Jobs looked beyond ringtones

A Forbes survey back in 2002 found that “business professionals” would be willing to pay for “news content to be delivered to their cellular devices,” and some media companies tried early mobile experiments. Verizon offered a cell phone version of the Yellow Pages — which, at $19.95 per year, gained 15,000 subscribers in three months. But starting in 2004, everyone decided the future was in ringtones. A $4 billion global business by the end of the year, one company projected.

So, so many ringtones. You could buy them from Rolling Stone or from an ATM-like device called E2Go. A fall 2004 marketing campaign let you mix your own ringtones on Levi’s website. Billboard launched a top ringtones chart.

Could ringtones “prove to be a passing fad”? we wondered late in 2004. Luckily, yes — a new technology came along to shake up the mobile market. No, it wasn’t the $500 ESPN phone, but the iPhone, which came out in 2007. And by opening its platform up to third-party app developers, Apple got users ready for its next ecosystem-changing device, the iPad, in 2010.

Monetizing mobile

Advertising has always been a fuzzy business — how exactly do you measure engagement and success? Well, that’s still the big debate about advertising in the digital era.  ”If here’s anything that’s really holding back ad spending on the web, it’s the lack of good measurements,” Tim Armstrong, then Google’s VP of national sales, said in 2007.

Mobile advertising has also faced obstacles. In 2006, mobile carriers began allowing advertising despite fears of annoying customers. Customers were indeed annoyed – 79 percent of them found mobile advertising annoying, according to a 2007 Forrester study — but they could “see the potential benefits of mobile advertising and marketing to themselves,” particularly if they could get a useful special offer or coupon.

Further complicating matters for advertisers: The smartphone market is fragmented among different brands — marketers don’t want to spend the money to create different ads for Android and iOS — and there are two mobile ad universes: mobile browser and apps.

Nevertheless, mobile advertising has gained ground, crossing  $1 billion in the U.S. for the first time in 2011, according to the Interactive Advertising Bureau, totaling $1.6 billion for the year.

The next opportunity is social media advertising. And once again, it will be a challenge to figure out some standardized metrics. What’s a retweet worth, anyways?

Back to where we all began

Though micropayments worked well for music when Apple launched iTunes, the path to payments for written content has been rockier. In 2004, we wrote that “micropayments today are still characterized by a large number of competing transaction types” – including direct-to-bill, merchant aggregation, prepaid accounts and direct transfer – and “each of these face the current incumbent in digital content distribution: the flat-fee subscription model.”

Eight years later, it appears that the subscription model has won out. The iPad opened the door for magazine and newspaper publishers to create new revenue selling content on that platform, but the results have been mixed. When Rupert Murdoch’s “The Daily” iPad newspaper launched in early 2011, the company called it “the model for how stories are told and consumed.” We wrote, “The bet here is that while consumers are less and less likely to reach into their pocket for a few quarters to buy a newspaper, they might not care about the 14 cents on their credit card for a copy of an e-newspaper.” A year and a half later, The Daily has over 100,000 paying subscribers — but it’s living on borrowed time and may not get through the five years its publisher has said it needs to break even.

Writing for the web, of course, has been around for awhile. At the beginning of the decade, blogging was called “nanopublishing,” and the question was how blogs could support themselves doing it. All sorts of models have arisen. For example, Gawker tried a licensing deal with Yahoo, but that relationship ended a year later. The deal “garnered way more attention than we expected, but less traffic,” Gawker CEO Nick Denton said in 2006.

Some bloggers have stayed independent and make a living from advertising (or from their day job); others write their blogs under a newspaper, website or larger magazine’s umbrella — see the Dish’s Andrew Sullivan, FiveThirtyEight’s Nate Silver, WaPo’s Ezra Klein. Or, they go to work for the Huffington Post!

Magazine companies have grappled with whether to bundle digital editions with print subscriptions or charge for them separately. Time Inc. — which first put digital editions of its magazines behind AOL’s paywall in 2003 — started out charging separately, but today Time Inc. and Condé Nast print subscribers get the digital edition free. Hearst, meanwhile, is charging separately, and it said its digital business in the U.S. became “solidly profitable” for the first time in 2011.

Could there ever be a Netflix for magazines? Time tried it for print versions with its 2008 Maghound service. It failed, due to a lack of marketing and reader interest. Magazine publishers are trying again with joint venture Next Issue Media.

Many newspaper publishers, most notably the New York Times, tried paywalls at the start of the decade and then abandoned them – only to return to the model in the past couple years.  In its most recent earnings report, the NYT said it has 454,000 digital subscribers. Is that enough to sustain the newspaper in its 21st-century transition?  Probably the best answer to that came from  Vivian Schiller. But it was in response not to the NYT’s recent digital subscriber numbers, but to the NYT’s decision in 2004 to close the paper’s first paywall, known as TimesSelect. Schiller, then the SVP and general manager of NYTimes.com, was asked whether TimesSelect had worked.  “It did work,” she said. “It’s just a matter of as compared to what.”

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“Revenues are growing quickly and costs are coming down,” Armstrong told analysts and investors, who spent a significant chunk of the earnings call talking about the controversial local effort that some argue should be shut down. It was a flashpoint for activist investor Starboard Value, which forced a proxy fight that it lost.

Patch is still in red mode after more than $200 million in investment since 2009, with more money going into a new data-driven product Armstrong says will make its debut sometime this fall. It’s been in development for at least the past six months. Armstrong promises the new version will change the way people see Patch and what it can do, telling them:

“When you see it, you’ll understand.”

Asked if Aol is ahead or playing catchup with Patch, Armstrong raised an interesting aspect of being in the local marketplace. “When I look out across the traditional landscape, almost every traditional company in our space is in a turnaround of their own.” He mentioned newspapers reorganizing or selling to get away from pension costs. “We’re ahead of the marketplace — in terms of scale, doing it in a differentiated way.”

Armstrong brought Patch into Aol and he is still a true believer, even though the latest reorg put him a step away from overseeing it. He noted that Patch is “a very closely watched investment,” and added, “It’s obviously a bold step for us as a company.”

Artie Minson, the former CFO on his first call as COO, said that some cost cutting continues: “Expenses on Patch are down a little bit sequentially. We’ve been trying to optimize the operating structure of Patch; at the same time, we see strong revenue growth from Patch.”

Armstrong said Patch is seeing some success with national advertisers and continues to work on e-commerce as well.

Minson and Armstrong didn’t provide more explicit details on current investment or revenue numbers; Minson says they haven’t broken those out. The earnings report mentions “double-digit” gains in traffic and engagement sequentially and year over year.

One more sign Armstrong isn’t backing down: his prediction that “it’s going to be a very interesting next couple of years for Patch.”

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But one of the most interesting trials could be a new hyperlocal service called n0tice that the company is putting through its paces.

The site, which is currently running in invite-only beta, is an attempt to create a publishing platform based on location — and it uses the metaphor of a community noticeboard to get there. People can sign up to create their own board, customize it, leave messages, place small ads, anything they like. In a way it harks back to the days of BBS, but with all the bells and whistles you might expect from a website in 2011.

Testers, mainly in the U.K. where most of the focus is, are starting to use it for a range of different things: whether it’s existing local bloggers giving it a trial run, people selling items, listing events in their community, reporting road closures, and so on.

And there’s a business model too: while small ads are free to run, companies that want to target users pick a location and pay depending on how far they want their message to spread.

It’s certainly a departure for The Guardian, which has largely focused on content over platforms — and the end result is a hybrid with some serious potential. It’s part blogging platform, part Craigslist, part communal Twitter stream, part forum, part event listing. Work clearly needs to be done on some areas, and the emphasis is likely to shift over time, as more and more users come in and shape it — but the real question is whether it becomes more than the sum of its parts, or less.

Hyperlocal has long been something media companies have talked about as a way to save themselves, yet in reality it has struggled to really make its mark. On a micro scale, a number of local media properties have done this very well over the years — sites like McKinney, Texas’s Townsquarebuzz or Howard Owens’s The Batavian, say — but in order to be sustainable for a large media organization, hyperlocal needs to scale. That’s part of what convinced MSNBC to buy and relaunch EveryBlock, a data aggregation service that promised to make important local news available to you.

But where EveryBlock was all about data, n0tice is about people.

“I love Everyblock, it’s a real inspiration, actually,” explains Matt McAlister, who is running n0tice from his lofty perch as director of digital strategy for The Guardian‘s parent company, Guardian Media Group. “But I wanted to go as far in the opposite direction as I could in terms of aggregation, at least at the start. We may be wrong about that choice, but I’d like to think that people will be interested in participating on n0tice in part because it’s their space to make.”

He adds that it’s also different from other services that it shares similarities to, such as AOL’s often-derided Patch.

“It’s different from Patch in lots of ways, but one significant difference is that anyone can own a noticeboard, kind of like WordPress. It’s totally open that way. It’s different Craigslist in that it feels like a more holistic view of what’s happening the local area, not just things that people are trading.”

Still, with The Guardian behind it, a lot of people are going to be watching n0tice to see what happens. There are a few things that are worth thinking about that should be taken into account, though.

First, the UK classifieds market is far more disjointed than, say, America. Craigslist — so often invoked as the scourge of the U.S. news industry — is not just weak, it’s more or less non-existent. Sites such as the eBay-owned Gumtree are more powerful but not entirely embedded.

Second, the idea that newspapers have failed to compete with Craigslist — as posited in this piece at the Nieman Journalism Lab — also carries less weight in the U.K. Britain’s Daily Mail, for example, has been active in the small ads online for years with the likes of loot.com and has a growing property website empire.

Third, the real competition for a service like n0tice may ultimately be from social networks like Facebook or Twitter, where communities of interest already coalesce. McAlister’s argument here is that n0tice doesn’t have to beat social networks, it just has to be open enough.

“We haven’t really viewed what we’re doing in a competitive landscape, but rather approaching a common real world problem that doesn’t seem to have been solved yet. Given the open nature of the platform we’re building, I imagine we’ll be able to do a lot with WordPress and Twitter and Foursquare and any other open platform.”

Some seeds of where this thinking might go can be traced through his own work. Before being catapulted to run group-wide digital strategy, McAlister helped architect the Guardian Open Platform system — which attempts to turn the news into an API. Prior to that he was director of the Yahoo Developer Network and at the intersection of publishing and the web with The Industry Standard and Infoworld.

He confirms that combining with other services will be important as n0tice grows. A read API is about to be launched and they’re working on a write API too. Meanwhile, it will be important to connect to existing social networks and sources of activity. “We have done some lightweight hooks so far, but clearly there will be some fun things we can do with Twitter, Foursquare, Facebook et cetera,” he says.

Staying power needed

Still, even if n0tice gains traction, the longer term issue may be whether it has support. After all, The Guardian‘s approach to the local market and small ads has lurched one way and then another over the last few years — it sold off its regional news operation for £44m, sold half of its sizeable classifieds business Trader Media, and launched and then closed a series of local blogs.

It’s not the only one: large news organizations including the New York Times and Washington Post have launched attempts at hyperlocal platforms or services, only to shut them down soon afterwards. Even with support from the top, does the company really have the willpower to get stuck into hyperlocal and stay there?

“My hope is that the advertising model we’re working on will support the investment people make in n0tice,” says McAlister. “If that’s the case then it will at least be sustainable, if not actually a generative platform — something that gets stronger the more people use it.”

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Even before AOL’s future started to look dodgy — with speculation about the future of CEO Tim Armstrong ramping up, as the company’s financial underperformance continues — the rollout of the Patch.com hyperlocal news project seemed exceptionally ambitious. To create a thousand local newsrooms across the country felt a lot like a “boil the ocean” kind of venture, with impossibly high costs and a slim chance of success. According to some reports, AOL is now busy scaling back its ambitions for Patch as well as trying to cut costs, which could ultimately wind up jeopardizing what the project was designed to do in the first place.

A report by Jeff Bercovici in Forbes magazine says the 800 or so editor/reporters who run Patch’s local outlets “have been told their budgets for freelance assignments are being reduced, in some cases severely,” and content is also being re-used across multiple local sites within the Patch network. There have also been some reports that editorial staff within Patch are being asked to help with advertising sales, a move some see as crossing the editorial/advertising divide that exists in most journalistic entities. And there have been a couple of high-profile departures from the ad-sales side of the AOL unit, which doesn’t create a lot of confidence about how that part of the business is doing.

AOL is said to be committed, but for how long?

Patch president Warren Webster, however, has said in a number of interviews that AOL remains committed to the effort, and that reports of its imminent demise have been greatly exaggerated. He told Forbes that while editors in charge of some local Patch units have been working to help come up with advertising campaigns and ideas, this has been a result of their own initiative, not something AOL has forced them to do. And he told StreetFight — an online magazine that covers the hyperlocal sector — that the former web portal is pleased with the progress it has made so far:

We are succeeding on a number of levels, and our users and advertising clients remind us of that every day. Building something as ambitious and important to communities as Patch is a long-term investment… the company is very committed to Patch.

AOL’s management may be committed to Patch on an ideological level — the hyperlocal market has been a fascination of CEO Tim Armstrong’s since before he joined AOL, when he helped to finance Patch as an investor while still at Google — but the question of how long can it continue its financial commitment remains. The project has so far cost the company more than $130 million dollars, and if it reaches its goals, it could cost another $30 million or so (although Forbes says the 1,000-town goal is being downplayed). That’s a lot of money for a company that continues to post disappointing results, after reassuring investors numerous times that its balance sheet was close to turning the corner.

Not only that, but Armstrong has repeatedly promised that some Patch outlets would be profitable by the end of this year, and that window is quickly closing. According to some reports, the company is even spreading advertising sales around so that Patch’s better-performing offices look profitable, although Webster denied that this was happening in his interview with StreetFight. If AOL can’t show that hyperlocal advertising is a workable strategy, then the skepticism about the viability of the project is going to accelerate, to the point where Armstrong could find himself facing unpleasant questions from his board — like the ones Yahoo CEO Carol Bartz faced just before she was ousted.

Can Patch cut its way to profitability?

Webster told Forbes that the reduction of freelance content at Patch’s sites was always part of the larger plan, and posting content from other Patch outlets across the network also made sense, even if it stretches the concept of what local means. But those steps also feel like an attempt to get a handle on the millions being spent on the project — along with a recent shift in focus that is aimed at getting more bloggers to post their content to Patch’s sites free of charge (including one controversial effort that is targeted at high-school students), in the same way many contributors do to Huffington Post.

But are there enough bloggers who can fill that gap? And will AOL be sharing any of the advertising revenue it hopes to generate with them?

Huffington Post has also been rolling out more locally-themed topic pages, including several recent ones aimed at readers in Detroit and Miami — and these efforts have also caused speculation about whether the company is more interested in an aggregation approach rather than unique content, since the former is substantially less expensive. The problem for Patch is that the more its sites become lookalike aggregators rather than having a unique voice, the less likely they are to appeal to the market they are aimed at, and the less desirable they will be as an advertising vehicle.

AOL’s management may be committed to Patch for now, but the company can’t continue pouring money into an unprofitable entity forever, no matter how much Webster talks about a “long-term” investment. AOL doesn’t really have the luxury of thinking long term at the moment — Armstrong has to show some positive movement to investors or his job is likely in jeopardy, and without him Patch loses its biggest champion.

Post and thumbnail photos courtesy of Flickr user Stewart Chambers

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