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AOL (NYSE: AOL) is about to announce it’s acquiring hyperlocal veteran Outside.In, paidContent has learned, confirming earlier reports from Business Insider, who estimates the deal at under $10 million.
Patch President Warren Webster will be announcing the reasons behind the deal. Some of the points he will make:
— “Every town needs a Patch” (and practically every town has one — there are 800 Patches across the U.S. and they’re growing)
— The existing Patch model is working fine — “Outside.in will help us scale this in a low cost, efficient way, in addition to our current model”
— “Will empower and connect with more local bloggers – they have great relationships and technology in the local space”
— “We will be able to have more scale, more engineering”
— Webster also praised Outside.in’s “talented people” and “excellent” CEO Mark Josephson, “all dedicated to the local space”
— Fred Wilson and other great VC minds behind the product
In many ways, the deal makes a lot of sense for AOL/Patch and for Outside.in. There’s really no overlap — in fact, since Outside.in is premised on aggregating local bloggers, the company has been helped by Patch’s continuing and rapid expansion.
While Patch’s 800 neighborhoods may seem like a lot, Outside.In which boasts a growing presence in some 60,000 neighborhoods across the country. It’s also been in the middle of striking a number of high profile partnerships with CNN for its local mid-term coverage. CNN was also part of New York-based Outside.in’s $7 million funding in Dec. ’09 . The company has raised more than $12 million to date.
While AOL has aggressively rolled out Patch over the past year, questions still dog the property about its ability to ultimately generate a profit. In a Q&A with Staci D. Kramer at our paidContent 2011 conference yesterday, AOL CEO Tim Armstrong reiterated his belief in Patch as an essential part of the company and expressed continued confidence that the business will be able to scale successfully, given that more than half of all advertising is local.
The acquisition comes during a flurry of M&A activity by AOL the last few months, That activity has focused on bringing a mix of high-profile content companies (Huffington Post, Techcrunch), video producers (StudioNow, 5Min) and display ad tools (Pictela). Armstrong has often talked about “improving AOL’s plumbing” through acquisitions. Given Outside.in’s relative success the past few years — though it’s probably not profitable yet — the company has stuck some important ad partnerships the past few months.
Whether anyone can make money in hyperlocal is a question that is being asked more and more these days, following the implosion of Allbritton’s Washington DC-based TBD.com. Still, that case is appears to be an argument for what not to do: that is, you can’t base a hyperlocal business on one metro area. A network of sites still seems to make the most sense, as national brands seek to reach the local level. Plus, a network can best support the necessary sales teams that can be put on the ground to attract small businesses.
In an interview with our Joseph Tartakoff following its $7 million funding round, Outside.in’s Josephson offered other ideas for generating revenue on top of advertising. “There are different ways to make money in local,” Josephson said. “No different really than other media business. The media business is about aggregating a targeted audience and providing services of interest or selling ads to those who do. Great example is Brownstoner, a fantastic local blog, (which) also owns and runs Brooklyn Flea (a weekly outdoor flea market).”