AOL Inc., the once-dominant Internet service provider that saw its market value and user base dwindle over a decade, may restore lost relevance after yesterday’s purchase of TechCrunch Inc. and two other startups.
Chief Executive Officer Tim Armstrong appeared on stage during a tech industry conference in San Francisco to announce the purchase of TechCrunch, an influential news blog and the host of the event. AOL paid about $25 million, according to two people familiar with the matter, who asked not to be identified because the terms weren’t made public. The company also bought 5min Media, a network of online videos, and Thing Labs Inc., a creator of social-networking tools.
Armstrong, who took over AOL last year and spun it off from Time Warner Inc., is trying to revive growth after paring the business. He sold the social network Bebo and instant-messaging service ICQ because they failed to attract enough users. Even during yesterday’s acquisition spree, AOL announced plans to close another of its sites, the news aggregator Propeller.com. The moves may pay off, said Silicon Valley investor Ron Conway.
“Tim Armstrong and his new team are making decisions to shape the next generation of AOL in content and social media, and it bodes well for the company,” Conway, who founded venture fund SV Angel, said in an e-mail.
AOL’s CEO, a former Google Inc. executive, is relying on people he plucked from prominent technology companies to lead acquisitions. Armstrong poached David Eun from Google in February. Last year, he named Brad Garlinghouse, a veteran of Yahoo! Inc., to head AOL’s West Coast office.
“We’re here, we’re still looking, and we want to be very aggressive but smart in the space,” Eun, AOL’s president of media, said in an interview. “We have a lot of cash to make whatever smart acquisitions we need to make.”
AOL, based in New York, rose $1.11, or 4.6 percent, to $25.26 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 8.5 percent this year.
David Joyce, an analyst with Miller Tabak & Co. in New York, raised his recommendation on the stock to “buy” today, saying the shares may reach $32.
“AOL’s recent spurt of activity clearly demonstrates a move to the offensive,” Joyce wrote in a note.
Among the acquisitions, TechCrunch may do the most to restore AOL’s luster as Web users spend more time on competing sites, such as Facebook Inc. and Twitter Inc. TechCrunch will become part of the AOL Technology Network “while retaining their editorial independence,” AOL said yesterday.
In August, TechCrunch sites had 3.8 million unique visitors, the third-highest among technology blogs, according to Reston, Virginia-based data tracker ComScore Inc. Engadget, also part of AOL, is the top tech blog, with 7.5 million visitors. It’s followed by Gizmodo, a site owned by Gawker Media, with 6.5 million. AOL, then part of Time Warner, purchased Engadget’s parent company, Weblogs Inc., in 2005.
5min Media gives AOL a library of more than 200,000 videos, covering topics such as fashion, cooking and fitness. Thing Labs, meanwhile, makes the Brizzly line of social software. The programs let users create and share content online. AOL didn’t disclose terms of the acquisitions.
TechCrunch brings AOL the “top brand in the tech influencer community,” said Garlinghouse, who serves as president of consumer applications. “They have been trailblazers in thinking about the multimedia world.”
Time to Sell
TechCrunch was founded in 2005 by Michael Arrington, who created the blog from his home in Atherton, California, to share news about emerging Internet companies. The company is now based in San Francisco and has more than 40 employees, according to its website. In addition to publishing an assortment of technology blogs, TechCrunch hosts conferences, including TechCrunch Disrupt, which is going on now in San Francisco.
Becoming part of AOL will help TechCrunch alleviate some of the challenges of its rapid growth, Arrington said.
“It was time for us either to start investing a lot more money in things like technology and marketing -- which probably meant raising a venture round -- or to simply sell and partner with somebody who could do that,” he said in an interview. “AOL has a very robust, large blog network that shows they have the software side nailed. So it solves a real problem for us from the technology side.”
TechCrunch expects sales of $10 million in 2010. The company will have a profit of about $3.5 million, according to a person familiar with its finances.
Arrington plans to remain at AOL for at least three years after the acquisition. “There are incentives for me and the team to stay,” he said.
Besides gaining a bigger pool of readers and advertisers, AOL picked up products and talent that could help foster communities of online users, said Shahid Khan, an analyst at New York-based digital media consulting firm MediaMorph. Bebo, the social-networking site that AOL sold to private investors earlier this year, failed to keep up with the growth of Facebook and other social sites, Khan said.
“This is their second attempt at making social media part of their overall strategy,” Khan said.