Does AOL Know How to Profit Off HuffPo Purchase?

Digital buyers see vast editorial potential in AOL’s acquisition of The Huffington Post. But the ad sales side of the deal makes them scratch their heads.

Several buyers noted that a big part of HuffPo’s success has been the company’s embrace of technology to drive editorial decisions, i.e., deciding what stories and headlines will receive promotion on the site based on what users are responding to—often in real time.

That’s very much in line with AOL’s philosophy. Based on documents leaked on the Web last week, AOL CEO Tim Armstrong is looking to push the company to evaluate each piece of content AOL produced on its readership potential and profitability.

“I think it’s a really good deal for both parties,” said Jordan Bitterman, svp of media at Digitas. “AOL wants to be in the content business, and this is an outstanding content play. And Huffington Post has this wonderful back end . . . It’s really a new way of doing news. That technology product is probably worth a great deal on its own.”

But no matter how good the content is, it still has to bring in revenue somehow. The question of how that will happen hasn’t been answered yet. In fact, the purchase leaves AOL with even more unsold advertising space than it had without HuffPo.

AOL has long had plenty of scale yet has had trouble selling it. The company’s ad revenue plummeted by 29 percent during the fourth quarter of 2010, landing at $331.6 million. Display dollars in the U.S. dropped by 8 percent. And even though HuffPo says it expects to pull in $60 million this year, double its 2010 revenue, the company has plenty of unsold ad avails.

“I don’t think this solves that,” said Adnetik CEO Ed Montes. “Now they have more unsold inventory.”

Indeed, Montes wondered what AOL’s sales strategy will be going forward. HuffPo has very publicly decried the use of ad networks to sell excess inventory as it attempted to define itself as a place for premium brands. Meanwhile, AOL has also sought premium advertising while managing one of the largest ad networks in the industry in

Said Montes: “AOL seems to want to go bigger, with more scale and impressions, rather than pulling back.”

Adam Shlachter, MEC managing partner, digital investment group, sees AOL gaining a highly engaged audience with HuffPo. Yet, he too cited an ad sales challenge.

“If you look at the audience Huffington Post has, people are constantly coming back to them. It’s a loyal audience,” said Shlachter. “But [for AOL now] there is a lot more inventory to sell. They’ll need to work on yield management. They need to make more out of that inventory.”
Patrick Hounsell, Razorfish’s svp, gm of media, North America, believes that AOL’s brand has much to gain from HuffPo’s editorial talent and, more importantly, reputation. “This gives [AOL] more legitimacy,” he said. “AOL’s problem has been, ‘What does AOL stand for?’ They need a story that made sense. That will have much bigger impact on ad sales than additional impressions or uniques.”

Jeff Levick, AOL’s head of global advertising and strategy, said that with HuffPo’s chief revenue officer Greg Coleman leaving the company, the plan is to combine the two companies’ ad sales teams under his leadership. Both companies will adopt several of their new partner’s sales tactics once the deal closes.

For example, The Huffington Post will likely begin running some of the ad placements being tested by AOL as part of its creative-focused Project Devil. The site may also increase its ad load, said Levick.