Determination or Desperation: AOL Snaps Up Huffington Post

Last week we reported on AOL's business plan for 2011 and how it appears to eschew content quality in favor of content quality. Today, the company announced that it's reached an acquisition agreement with The Huffington Post. For the price of $315 million, Arianna Huffington and her website's staff, professional journalists, and various contributing bloggers have become a part of AOL's not-insignificant online media empire.
Huffington has published a blog entry of her own detailing how and why she and AOL CEO Tim Armstrong came to this arrangement. "while Tim was talking about his plans for turning AOL around, he said that the challenge lay in the fact that AOL had off-the-charts brand awareness, and off-the-charts user trust and loyalty, but almost no brand identity. I was immediately struck by his clear-eyed assessment of his company's strengths and weaknesses, and his willingness to be so up front about them...By combining HuffPost with AOL's network of sites, thriving video initiative, local focus, and international reach, we know we'll be creating a company that can have an enormous impact, reaching a global audience on every imaginable platform.

Far from changing our editorial approach, our culture, or our mission, this moment will be for HuffPost like stepping off a fast-moving train and onto a supersonic jet. We're still traveling toward the same destination, with the same people at the wheel, and with the same goals, but we're now going to get there much, much faster.
AOL isn't just buying HuffPo. As part of the deal, Huffington has been appointed as chief architect of AOL's would-be online media empire. From here on out she'll guide the combined companies' digital strategies with an eye towards integrating and cross-pollinating content from one to the other. Huffington's experience makes her a natural fit for the position, but AOL's willingness to turn combined operations over to her is a tacit admission that the company's own digital content strategies aren't working.

HuffPo's current FP

The good news is that AOL should have little difficulty meeting the production goals it set for itself during Q1. More sobering is the size of the task in front of the now-merged company; integrating corporate structures and streamlining content production poses a considerable challenge. The merger doesn't address concerns over whether or not AOL is properly prioritizing production goals and there's the question of whether or not HuffPo can maintain its own distinctive voice and coverage policies.

There can be no doubt that Armstrong is willing to strike out in new directions and take risks when it comes to the future of his company. HuffPo's $315M purchase price is a significant chunk of AOL's cash reserves; the company will likely sink or swim on the strength of this decision. HuffPo, despite its clout and impressive readership figures, doesn't have a high gross margin.

As a final note, we can't help wondering what Armstrong made of Huffington's decision to quote him discussing AOL's "off-the-charts user trust and loyalty." It's hard to overestimate the irony of that particular statement; AOL currently derives the bulk of its revenue from elderly or uniformed subscribers who pay the company for a service they don't actually need. Given the economic uncertainty of the past years, we suspect the customers AOL continues to dupe might have a few choice words for Armstrong when it comes to topics like loyalty.