AOL's Patch: A Problem Of Scale
The one thing I've always believed AOL CEO Tim Armstrong got right with his initial conception of Patch was that legacy media spends too much money on producing printed products.
In the online news world, not only do you eliminate the costs of composition, paper, ink, trucks and paperboys, it is simply more efficient to gather and produce news in the digital age for digital delivery.
There are still a lot of people in the newspaper company world trying to figure out how to preserve big newsroom staffs, rather than noodling through realistic revenue projections for local community coverage and calculating how many editors, reporters and photographers that revenue will cover.
The emerging news publisher must begin with revenue and work backwards from there.
Up to a point, Armstrong got that part of his enterprise right.
His big mistake was thinking he could do it at scale in the first year.
The reason our great newspaper chains of the 20th Century are named after individuals — Pulitzer, Hearst, Scripps, Knight-Ridder, Gannett, McClatchy — is that each of the men behind these legendary corporate names started with single newspapers and grew empires based on their initial success.
William Randolph Hearst didn't become Citizen Kane overnight.
Pulitzer, Hearst, Scripps, Knight, Ridder, Gannett and McClatchy each got their business process right in one community and learned how to apply it, factory-like, in other cities.
The ugliest word in the modern media world is "scale."
Armstrong chased scale: IT infrastructure scales, server farms scale, message systems scale, cloud computing scales. But local news does not scale.
Widget makers understand scale. The most expensive widget is the first one. Each new widget is comparatively pennies on the dollar.
In the news business, the first story costs just as much as the third or the 30th or the last. Online, it's possible to get more production out of a single reporter, but time is not elastic. At the end of the day comes the end of the day.
So, that's the first fallacy of scale. The second is that cost savings can be achieved by putting 1,000 publications on a common platform.
The reverse is actually true.
It would be cheaper to let 1,000 different editors choose their own installations of WordPress or Drupal than trying to build a CMS to scale. The headaches of a large scale CMS are enormous and the IT overhead is no trivial matter compared to multiple independent WordPress installations. WordPress — more so than Drupal — is a platform that needs practically no IT support if you have smart and savvy editors.
The third issue with trying to scale local — more of a flaw than a myth — is the often overlooked cost of corporate overhead.
The more employees you have, the more supervisors you need. The more supervisors, the more managers, and then the more executives and with that all of the support that goes with it — HR, corporate attorneys, accounting, payroll and so on.
In trying to achieve scale for local news, you actually do the opposite of what scale is all about. You lose all the advantages of efficiency and cost reduction. You burden your individual news sites with unmanageable overhead costs, costs that diminish your news gathering capability, thereby hurting the very product designed to make money: local news.
One can argue — and I do — that most of the adversity today's newspaper chains face isn't online disruption, but crushing corporate overhead.
So if Armstrong was right in one regard and wrong in another, what could he have done differently?
The answer should be obvious: Plant the seeds of independent local news startups.
Imagine what a difference it would make to the local news landscape if a company with AOL's resources dedicated just a couple of million dollars in seed capital for existing or aspiring local news publishers. In comparison to what AOL has spent already, it wouldn't take much money at all to help a few hundred local news publications either get up and running or move up the revenue ladder. A series of small bets often pays off better than one big bet.
Several local independent news publishers — all of us, members of LION Publishers — have already proven there is money to be made in local online news. It's not a lot and we work damn hard for it, but it can be done.
Our advantage is that our costs are low — our only overhead to start with is keeping a roof over our heads — and we're embedded in our community.
It's very hard to sell local online advertising, but it's harder still when your sales reps are just employees and are not truly part of the community. It's hugely advantageous for a local news site owner to walk into a local pizza shop or furniture store and say, "just like you, I'm working hard to build a business that will serve the community." That bond can't be faked.