AOL’s Huffington Post Acquisition: An Epic Fail - Jaffer Ali

Huffington's apparent interest in real journalism is fundamentally at odds with AOL's desire to mass-produce profitable content. The only way to reconcile these apparent conflicts is with the understanding that most of what Armstrong and Huffington have stated publicly and to their respective constituencies is just fluff. –Patricio Robles, Econsultancy

While I agree with the above sentiment, I believe the acquisition of HuffPo by AOL fails on an additional, more existential level. The defective meme in AOL’s strategy is one that overwhelmingly believes that the road to riches is to scale supply.

What?

I know that most people believe in the notion that adding MORE SKUs if you are a retailer…adding MORE content if you are a publisher…adding MORE choices within your business model is a solid strategy. But it simply isn’t. Let me explain why.

The real “paradox of choice” regarding business models has little to do with Barry Schwartz’s insightful thesis that more choice leads to less happiness. A simple business principle suggests that scaling choice before you have figured out how to monetize what you have is a recipe for disaster. The increasingly crowded automotive field offers a clear case in point, to wit GM will make more revenue this year with four brands than it made last year with eight brands.

Let’s explore what I mean a little further. AOL has amassed considerable eyeballs. Yet it’s safe to say that the recent announcement that their decline in display advertising of 23% in last year’s 4Q was caused by one or both of the following:

1) They cannot properly monetize the eyeballs presently under their control

2) They are experiencing a precipitous decline in eyeballs.

By attempting to scale a virtually limitless supply instead of addressing a finite consumer demand – there is only so much time and only so many eyeballs to go around - AOL is spending their time and money on the wrong end of the equation. MORE content…MORE choice does not necessarily make a better business model. And in AOL’s case, they just spent $300 million in cash because they are looking for love in all the wrong places.

Why does the Super Bowl reach 100 million viewers, when the same time period on the same channel the night before reaches only 2 million viewers? It’s not as if there are fewer channel choices on a single Sunday in February. It’s not as if the Internet shuts down for the day. The reason the Super Bowl reaches 100 million viewers is because it only happens once a year – the ultimate illustration of limited choice producing greater scale. It’s the same reason why 60 million viewers tuned in to the Beverly Hillbillies each week in the 1960s when there were basically only three commercial channels to choose among on television.

A business model that has good content in limited quantities and can scale reduced choice is the model to chase. More and bigger is not better…better is better. I wrote about this in “Choice and Scale” but the thesis is worth repeating here. If what you are doing is not working, doing MORE of that is not a way out. The aphorism, “if you want to get out of a hole, stop digging” is operative, as is Albert Einstein’s sage observation that “No problem can be solved from the same level of consciousness that created it.”

But Armstrong and company keep shoveling just the same.

Read all Jaffer’s MediaBizBloggers commentaries at On the Other Hand….

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