Patch - AOL's hyperlocal experiment instructors' notes

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CASE DESCRIPTION The primary subject matter of this case concerns corporate growth strategies and the importance of analyzing the business models for growth. This case can be targeted as a strategy case, specifically a module dealing with corporate level strategy. After completing this case, students should recognize corporate growth strategies and the interconnection between strategic goals and market conditions, how scale impacts the effectiveness of an initiative, and the impact of ignoring scale effects, positive or negative, in strategic management. The case of AOL - Patch shows the challenges of growing a hyperlocal news web operation in a changing market landscape. AOL acquired Patch in 2009 and, within 3 years, expanded the operation to more than 800 sites nationwide without proving the profitability of the business model at any level. At the corporate level, AOL invested up to $300 million into the expansion of the Patch operation during this time period, with most of the expenses related to human resource acquisition. During this time, the hyperlocal news marketplace experienced intense change, mostly attributed to the decline of print media and the emergence of new distributors of local news. By the end of the case, after multiple years without profitability, the Patch operation was forced to reduce in size, laying off many workers and shutting down 30% of the Patch sites. CASE SYNOPSIS Patch was AOL's attempt to capitalize on the changing local news market in the U.S. The decline of print media has caused many of the local daily and weekly publications to close their doors, leaving an opportunity for digital methods of news dissemination to step in and provide the service to communities. Despite failed attempts from established news organizations such as the New York Post and Washington Post to operate hyperlocal news networks profitably, AOL remained committed to Patch and invested heavily. The primary driver attracting these high-powered organizations to local news is the estimated $20 billion opportunity in local market advertising throughout the US. The traditional business model for a hyperlocal operation is buoyed by advertising revenue. The outstanding question is how to find harmony between the operational model and the business model required to fund it. On the surface, it doesn't seem that the revenue generated by standard online advertising mechanisms is sufficient to support continued operations of small independent sites or large regional or national networks of sites.

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Journal of the International Academy for Case Studies

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