AOL (“Aol.“) is doing some interesting new things these days. Even its rebranding is interesting, although seemingly insignificant. The company’s strategic (re)focusing and the cost (re)structure that is underway, will in the months and presumably years ahead (re)define AOL as a next generation content platform. The parentheticals are meant to imply that there was little by way of focus, structure, or definition in the first place, and the current (re)position is thus a big deal indeed, even if for no other reason. But there are other reasons, as AOL will now not be an ISP, not a search engine, not any of the activities and categories in which it ranks third or fourth or more distantly behind. And if the new look is any indication, there will be something in this content platform for every taste and every demographic. In short, AOL is turning itself into a light-weight moving target, and its new brand video is worth a thousand words.
Although there have been critics and skeptics in abundance as the company was making its case on the PR circuit in the past week, I think AOL could be onto something truly important. The very lightness of its approach is in my opinion massive. Continuing where I left off in my previous post, what I believe AOL is largely up to is a “deleveraging” of its business or, as it were, an easing of the load. In a more dynamic and volatile environment than was the case in the company’s (first) prime, some years ago, this new approach is logical.
What I am referring to, of course, is not financial leverage, but leverage in the sense of legacy infrastructure, systems, and business models that had all run their course and become dated and a hindrance to AOL’s advancement. The ISP business is a depleting asset – although amazingly enough there are still customers out there who are paying for email service – and the search business is really an afterthought in the midst of all the Google vs. Bing rigmarole. Yet both of these products, and others, are just significant enough to have defined AOL as something with really no future. Forgetting the cost aspect of such businesses, the definitional weight alone had to be shed.
On another level, the new content strategy itself and the way in which AOL plans to undertake this single focus, speak to a new method based on flexibility, market-response, and – this is key – variable cost. The system will be a sort of lead generation business, substantially driven by robotic web-scouring for subjects of interest in search queries and related traffic patterns, and the doling out of assignments to freelance writers who will then be payed through a share of the ad revenue generated. In essence, writers will be given leads, and will be paid like salespeople on commission, for closing the deal. Fixed editorial costs are thus converted to a variable expense, and the financial risk is split between the sales platform and the sales person… which is to say, offloaded.
If this strategy were an investment, it would be something like a hedge. No editorial position to speak of, but strictly a response to market interests. No payments to writers, other than strictly based on economic merit. The media company thus becomes a clearing house in essence, a research platform that matches up supply and demand for content, and keeps a revenue slice for its brand, franchise, and back-office systems. If this company were a Wall Street firm, it would be a broker.
And here’s the clinching irony: if the strategy works and the cash flows, a business as described can take on financial leverage. The equity return benefits of doing so are well known.
