The recent layoffs at Patch, AOL’s “hyper local” product, points to some of the fundamental problems associated with the space. The Patch philosophy was to make a business out of hyper local ads served against hyper local content. It’s been a bit of a mess from the beginning with criticism that the journalism is of questionable quality and the advertising ROI is mostly missing. More than 70% of their advertisers don’t renew their campaigns and of the $13 million revenue they did manage in 2011, a good chunk of that was allegedly national advertisers diverted to bolster the numbers.
You have to give AOL credit for taking a firm swing at hyper local and staying with it. They spent $160 million on it last year and several of their major investors are pushing to spin off the property with a partner to share the costs. Part of the problem was that they were trying to use a more traditional top down editorial approach (at one time with the mighty Arianna Huffington in charge) with highly paid editors wrangling citizen journalists, and that’s proving expensive.
One possible solution would be to revert to a truly volunteer army that would cut the overhead but potentially crater quality. The other problem: it is difficult to generate local online revenue from notoriously fickle local advertisers who aren’t getting readily recognizable return on investment. It’s hard to go hyper local without truly going hyper local on both content and revenue.
My suggestion would be to go citizen journalist 100% with perhaps some minimal content review process and offer the advertisers proven ROI with a Pay Per Call delivery mechanism. Then we will see if there is really a future.