AOL's surprise purchase of Huffington Post marries a listing early-internet brand with one of the fastest-rising content companies on the net — which AOL CEO Tim Armstrong hopes will amount to "an equation of 1+1=11."
The internet portal, which has experienced ongoing decline in users and struggled to settle on a successful content strategy under Armstrong, agreed to pay $315 milion for the news site, about $300 million of which will be in cash.
The move was the kind of game-changing step that Armstrong has needed, and was a triumphant exit for Huffington and her partner Ken Lerer, who started the company in 2005 and built it into the leading progressive news site on the Internet and a new model for a news organization.
There is some irony in the fact that Lerer and another HuffPo investor, Bob Pittman, were top AOL executives ahead of its sale to Time Warner in 2000. That ill-fated merger was disentangled in 2009.
Former AOL chief Steve Case, who was deeply involved in the Time-Warner deal, tweeted in response to Sunday's announcement, "Tim Armstrong says 1+1 will equal 11. Really? That wasn't my experience."
He later added that the deal "makes sense strategically. Was just teasing about 1+1=11. Congrats Tim/Arianna."
From a standing start, the Huffington Post now commands a higher valuation than the New York Times and more monthly traffic — about 25 million unique visits per month.
The news organization is believed to have turned a profit by late last year.
Meanwhile, AOL just announced that profits were up in the last quarter on cost-cutting, but revenues fell 26 percent to $596 million during the quarter — and ended the year down 26 percent mainly due to declining ad revenue.
Armstrong's hope is that buying the hottest news property on the web will give his Web 1.0 brand the kind of cachet with advertisers that AOL currently lacks.
The new group will have a combined base of 117 million unique visitors a month in the United States and 270 million around the world, according to the news release.
"The acquisition of the Huffington Post will create a next-generation American media company with global reach that combines content, community and social experiences for consumers," said Armstrong in a prepared statement.
It remains to be seen whether Huffington Post's leftist political bent will replace the more consumer-oriented, neutral voice of AOL.
It also remains to be seen how Huffington herself will fit in a large corporate structure. Indeed, the acquisition transmutes one of the blogosphere's leading independent voices, Huffington's, into that of a paid employee at a major media corporation – not a role that the iconoclastic political activist has ever inhabited.
Huffington essentially becomes responsible for AOL's content. Her new title will be President and Editor-in-Chief of The Huffington Post Media Group, which will integrate all Huffington Post and AOL content. Some AOL news initiatives, like Politics Daily, Daily Finance, are said to be likely to go away under the new structure.
AOL, which squandered a market leadership role when it failed to innovate during the rise of Internet competitors like Yahoo and Google, has struggled to redefine itself in the last decade.
Armstrong joined the company in 2009 from Google where he had a technology background, but nonetheless settled on a content strategy, aggressively hiring journalists and launching sites like Patch, for local news.
Last year, he acquired the technology news blog TechCrunch for more than $35 million to supplement its technology coverage, which already included the blog Engadget.
But on the whole AOL has not found its footing as a content player, and as recently as last week a memo by Armstrong laying down higher output demands angered employees and led to accusations that the portal was about to turn into a content farm.
The acquisition of The Huffington Post gives AOL immediate credibility as a content leader.
The Huffington Post created a new model for news content, beginning by aggregating and rewriting the news reporting done by other legacy news sites, and publishing user-generated (free) blogs from famous figures such as Alec Baldwin, Steve Martin and Norman Lear – from among Huffington's close friends.
As the site has grown, HuffPo has increasingly hired top-level journalists and editors that do original reporting, while still relying on an inexpensive (and often free) model of aggregating, blogging and news-writing. That has raised criticism in the journalism world, though it has not stopped the site from developing astonishing reader engagement.
The site, which continually launches new verticals, is expert in leveraging Facebook and Twitter to boost reader engagement, and garners some 4 million comments per month, according to the company.
The transaction is expected to close in the late first- or early second-quarter 2011.