For AOL and Yahoo, it's deja vu all over again
With AOL's spin-off from Time Warner becoming official Thursday, the once-iconic media company finds itself face to face with old foe Yahoo as both try to resurrect media empires.
What's old is new again on the Internet.
As AOL spins out from under the historic but disastrous Time Warner deal, it will find itself up against an old foe: Yahoo. Both Yahoo and AOL are attempting to shed their legacies as old-school Internet companies snowed under by the rise of Google by turning themselves into Internet destinations. Long live the portal.
Although the companies have never really stopped competing, things are certainly different this time around. Yahoo is arguably in the better position, with more resources and traffic surrounding its media properties as well as healthy e-mail and instant messenger usage that drives traffic to those properties. AOL is fighting uphill, with an e-mail domain that evokes retirement communities and much of its content strategy revolving around a project that solicits writings and photos from freelancers.
But with traditional advertisers finally starting to show tepid interest in Internet display advertising, there is likely some room for AOL at the table. Expect the two companies to run to different ends of the market, with Yahoo pushing its sites as high-quality, professionally run havens for major advertisers, and AOL stressing its reach and ability to target niche audiences.
On Thursday morning, as AOL began trading on the New York Stock Exchange, its shares were down about 2 percent to the vicinity of $23.25. Yahoo's shares stayed essentially flat, at around $15.30.
AOL's content plan revolves around a combination of professional writers and editors and crowd-sourced content. It launched Seed.com as a Web clearinghouse for the freelancers of the world to submit content in hopes of seeing it featured on AOL's sites, and hired New York Times writer Saul Hansell to oversee the project.
AOL CEO Tim Armstrong plans to direct that editorial operation with technological prowess, analyzing hot topics on the Internet and planning coverage around the zeitgeist. It's not as novel an approach as some may think: Internet news organizations of all shapes and sizes make coverage decisions based on how readers respond to certain topics.
But it does indicate that AOL plans to go after the same space as Yahoo. Both companies are attempting to turn themselves into sources of original content that is both compelling to both the masses and the critics, not to mention the advertisers.
Yahoo is currently trying to increase the amount of content it produces in-house, which hovers around 20 percent at the moment, depending on which part--Yahoo News, Yahoo Sports, Yahoo Entertainment, or Yahoo Finance--you're examining. The rest comes from content partners and wire services.
AOL, on the other hand, already produces around 80 percent of its own content. "I think when you own and are able to operate that content, the advertisers actually are very attracted to it," Armstrong told CNBC on Wednesday.
While that may be true, advertisers also like eyeballs. For the most part, Yahoo's properties are No. 1 or 2 in their respective fields, while AOL has a few winners in sites like Engadget and Moviefone but otherwise trails by a significant margin in those categories. Overall, Yahoo operates the second-largest group of Web sites in the U.S. with 158 million unique users, trailing only Google. AOL's network is the fourth-largest in the U.S. with 98 million unique users, according to ComScore.
AOL thinks it can offset that advantage by becoming the best content provider in a number of niche categories and then selling advertisers on the benefits of targeting that niche. "As the Internet becomes more fragmented, when--if--you can produce great content in niche areas and then really leverage the distribution on the Internet, you're looking at a very high scale, high ROI, return-on-capital business," Armstrong said in the same interview with CNBC.
It's not clear whether Armstrong has dialed up a winning strategy as he prepares to take one of the pioneering companies of the Internet back out on its own. He is, however, facing much more competition than the last time AOL was trying to make a content business on its own, and unlike that last time, he can not depend on a growing source of revenue from Internet access accounts.
Story updated at 7:00 a.m. PST with Thursday morning stock movement for AOL and Yahoo.