A couple years ago, I visited the very groovy, very lofty Soho offices of Patch.com. At the time, there were less than ten Patches in existence, all in the tri-state area but the team was hopeful that they were building something that would become much, much bigger.
They were very kind to me, a VP from a Canadian newspaper company who they didn't know, (and who had a nasty, snotty, sneezy cold to boot) and we spent an hour or so talking about each other’s businesses and possible ways we could work together in the future. They even let me take pictures of their offices for my blog, which was at the time less than three weeks old.
My main memory from the meeting was that they didn’t appear to have any understanding of how challenging the local online advertising space was. They seemed to have a blind faith that local advertisers would appear, with very little sales effort.
Knowing how challenging they were going to find the local advertising space, I walked away thinking that although they were a great team, their business was likely to fail. I never did write a post about them.
Imagine my surprise when only a few days later, it was announced that Patch had been acquired by Aol. I was baffled then and I remain so now. Especially since Aol seems to be counting on Patch to deliver them into the future as a digital content company.
But all is not well in Patch-land. Recently, anonymous Patch editors and sales people have confessed that not only is Patch no picnic to work for, the model isn’t working. Editors are under-paid and over-worked, sales reps are struggling to keep advertisers.
Let’s look at the facts:
There are currently around 800 Patches in the US and there are plans to have 1,000 by the end of the year.
Each Patch has a full-time editor. In addition there are approximately 100 sales people (way too few in my opinion). I can’t imagine the herculean effort on the part of Aol’s HR department to fill all those positions.
In Q1 of 2011, Aol invested $40 million in Patch and total investment for this year is on track to hit $120 million. Investment was $75 million in 2010.
Holy crap, that’s a big bet.
My estimation is that Patch needs at least 30 million UV’s per month just to break even (5 ads/page, $10 CPM, 65% sell through, 10 PV’s per UV). But despite the heavy investment, Patch reached a total of only 6.9 million monthly unique visitors in April (fewer than 10,000 UV’s per site). This dismal fact led to a “full-on course correction” which included an attempt to recruit 8,000 bloggers to make the sites more timely and interesting and perhaps boost traffic.
While aggregation may result in higher traffic for Patch sites, it still doesn’t address the fundamental flaws in the Patch concept.
First of all, most local advertisers are high-maintenance clients that are time consuming and expensive to acquire and difficult to retain (there’s a reason Groupon demands a hefty 50% of deal profits).
Small business owners are busy and it can be very difficult just to get a meeting with them. If they are not digitally savvy (and most are not) they require a long and detailed education before committing to a digital ad campaign starting with how ad servers work and why they won’t see their ad every time they come on the site. Most of them don’t have digital creative, many of them don’t even have a website.
Where small business owners are very sophisticated is in understanding what makes their cash register ring. So while a Patch sales person may be able to convince them to try a Patch banner ad once, they are unlikely to get a renewal if that ad doesn’t generate significant store traffic. And let’s face it, 10,000 UV’s per month is very unlikely to do that.
Second, the Patch business model is just plain old fashioned. It ignores the fact that there has been an unbundling of news and advertising. The reason that local advertisers bought ads around news content (primarily within newspapers) was not because they thought news led to sales, it was because news was where the eyeballs were (and there were very few other options). This is certainly not the case online.
I'm not saying that it's unwise to seek to fund a website through advertising revenue from local businesses. But I do think that you need to focus on helping your advertisers realize quick, measurable ROI. I don't think Patch is delivering.
What works in digital brand advertising is context. An ad for a bridal salon is out of context on a news site and is unlikely to be effective. Put that same ad on a site for local brides and watch what happens. My experience has been that click-through rates on relevant vertical sites are exponentially higher than on general news sites.
And that’s where Aol is missing the boat.
Aol already has dozens of vertical content sites. If I were heading-up Aol, I’d dump the entire Patch strategy and move toward the evolution of the verticals so that they are both national and local in nature. What if you could go on ParentDish, Aol Autos, KitchenDaily or Engaget and drill down from the national level to also see local content, listings and ads?
That’s how you create reader value. That’s how you create ROI for advertisers.
Perhaps it's time for an even more radical course correction.