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What’s going to happen to Patch?

The New York Times business columnist David Carr set off a debate Sunday about the state of local journalism and what a giant like AOL is planning to do with its platform. In a brutal column, Carr called CEO Tim Armstrong’s attachment to the pet project “sentimental, and some would say debilitating.”

Here’s the top of his column:

Tim Armstrong, the chief executive of AOL, is finally winding down Patch, a network of local news sites that he helped invent and that AOL bought after he took over.

At a conference in Manhattan last week, Mr. Armstrong suggested that Patch’s future could include forming partnerships with other companies, an acknowledgment that AOL could not continue to go it alone in what has been a futile attempt to guide Patch to profitability. He called it, somewhat hilariously, “an asset with optionality.” There may be a few options for Patch, but none come close to the original vision for the site.

The hunt to own the lucrative local advertising market, Mr. Armstrong’s white whale, is over. But Patch did not go quietly — hundreds of people lost their jobs over the last six months — and neither will Mr. Armstrong.

“Patch has more digital traffic than a lot of traditional players have,” he said in a phone call on Friday, still defending his pet project. “The long-term vision was clear: If you get the consumer, can you get the revenue? And we have a whole bunch of Patches where the answer is yes. But we rolled it out on a national basis and we’ve had to adjust based on the investor commitments that we have made.”

Bloomberg’s Megan McArdle followed with her own opinion piece on Monday, agreeing with Carr that Patch isn’t a viable business model. Here are some of her reasons:

That’s ironic, because hyperlocal news isn’t necessarily a bad business to be in; small-town newspapers are arguably faring better than small-city papers. Small-town papers don’t have as much competition from Craigslist Inc. for classifieds, and people still buy them to see their kid’s name on the honor roll or a picture of their church pageant.

But that sort of local news doesn’t scale. You have to have reporters to write the stuff and ad salesmen to sell advertisements to small businesses, but once you’ve written the story and sold the ads, there’s a limit to how much you can sell in small towns and cities. In larger areas, you have more scale — but also much, much more competition from people who were running a lot leaner than Patch was. Yes, you save something by being able to provide business services and information technology centrally. But you also lose some efficiencies to bureaucratization in a large organization. The core problem remains: Local news doesn’t scale that well. Which means that there’s not much benefit to linking a lot of local sites together on a single, large service.

Jeff Bercovici argues — correctly, I think — that Armstrong’s obsession with scaling up Patch rapidly doomed the site. But in some ways, this was inevitable. It’s hard for a big organization to do things on a micro scale — hard to keep managerial focus on such projects, hard to sell it to investors.

Wired’s Ryan Tate had a smart piece analyzing the problems with hyper local media and its inability to make money. He pulled in examples from Four Square and Curbed, both of which are going after national advertisers:

The takeaway here goes far beyond one startup: Though endlessly hailed as a huge opportunity, local online media has largely turned into a vortex of failure and disappointment. As failures pile up, you have to wonder how other high-profile startups will ever find ways of wringing big profits from what has proven to be a decidedly low-margin and slow-moving market.

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Part of the reason it’s so tough to sell to local merchants is that they are struggling with tight margins and a lack of online sales infrastructure and savvy. The same technological disruptions that make it possible to launch local websites and apps tend to undermine the very businesses that could support those startups, while also making it easier for online competitors to join the fray.

One local site whipsawed by these forces is Groupon, as much a poster child for local media failure as Patch. After witnessing an explosion of competitors on the one hand and a slog of a sales effort on the other, Groupon has been able to stop its own stock slide only by getting into the humdrum, old-school business of credit card processing.

Sometimes, old-fashioned penny pinching can get a locally-focused startup farther than technological innovation. Yelp, for example, is still losing money. But as the use of its service on mobile phones expands, it has brought its costs under control compared to last year. The stock tripled in 2013.

That’s the sort of performance spike that’s rare in local media. The norm is Patch. But there is at least some hope for the future.

Let’s hope Tate is right that there’s a future for these models because the landscape seems to be littered with apps and sites focused on local markets that are struggling to make money. While there may be a lot of consumer appeal in finding the best martini in town, there’s little reason for local merchants to spend money reaching these audiences when Facebook, Pinterest and Twitter are free.

Liz Hester

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View Comments

superf88 says:
December 18, 2013 at 8:32 pm
"people still buy (small town weeklies) to see their kid’s name on the honor roll or a picture of their church pageant."
I'd say that's slightly cynical -- in our small town leaders, townspeople and prospective residents are fed up with the lack of coverage -- the tsunami of parish announcements and portrait of the latest Homeland Security fire truck notwithstanding.
Yelp is the next Patch -- it just doesn't realize it yet. Build it out, boys.