AOL’s chief Tim Armstrong may not seem so crazy after all. The acquisition of Huffington Post, announced today, is clearly aimed at beefing up the company’s content pool in the wake of Demand Media’s (surprisingly) strong IPO last month.
To put it all in context, Demand Media is worth about $1.5 bn in market cap today — that’s $800 mil shy of AOL’s. Armstrong must have Demand on his threat radar.
AOL is pushing heavily into building its low-cost editorial factory. Leaked business plans show just how its editors are thinking: Is this story SEO-winning for in-demand terms? How can we modify it to include more terms? In all, AOL is aiming for search referrals to bring in 40 percent of its overall traffic — the largest single contributor.
So where does the HuffPo fit in all of this? For $315 mil, paid mostly in cash, AOL is getting more SEO friendly traffic from the popular blog site. By all counts, this is a smart deal. At 5x expected revenue, the HuffPo acquisition is almost cheap.
In the end, this is negative for online journalism. The deal once again proves the massive shift in the content industry to a bulk, low-cost production line led by SEO referrals. As a business, this makes sense. But for consumers, this takes you further from the news as reporters are incentivized to deliver on in-demand story trends on a daily basis. Say goodbye to enterprise, investigative or niche reporting.