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How Harry Potter Predicts Success for AOL

This article is more than 10 years old.

Image by Getty Images for AOL via @daylife

Evolution (change) doesn't happen like we think

It's not slow and gradual (like line A, below.)  Things don't go from one level of performance slowly to the next level in a nice continuous way.  Rather, evolutionary change happens brutally fast.  Usually the potential for change is building for a long time, but then there is some environmental shift (visually depicted as B, below.)  The old is made obsolete while the new grows aggressively.

Economists call this "punctuated equilibrium."  Everyone was on an old equilibrium, then they quickly shift to something new, establishing a new equilibrium.

Momentum has been building for change in publishing for several years.  Books are heavy, a pain to carry and often a pain to buy.  Now eReaders, tablets and web downloads have changed the environment.  And in June  J.K. Rowling, author of those famous Harry Potter books, opened her new web site as the location to exclusively sell Harry Potter e-books (see TheWeek.com "How Pottermore Will Revolutionized Publishing.")

Ms. Rowling has realized that the market has shifted, the old equilibrium is gone, and she can be part of the new one.  She'll let the dinosaur-ish publisher handle physical books, especially since Amazon has already demonstrated that physical books are a smaller market than ebooks.  Going forward she doesn't need the publisher, or the bookstore (not even Amazon) to capture the value of her series.  She's jumping to the new equilibrium.

Does Harry Potter on-line demonstrate a future for AOL?

Since acquiring The Huffington Post company, things are changing at AOL.  According to Forbes writer Jeff Bercovici, in "AOL After the Honeymoon," AOL's big slide has begun to reverse direction.  Many were surprised to learn, as the FinancialPost.com recently headlined, "Huffington Post Outstrips NYT Web Traffic in May."

Source: BusinessInsider.com

The old equilibrium in news publishing is obsolete.  Those trying to maintain it keep failing, as recently headlined on PaidContent.org "Citing Weak Economy, Gannett Turns to Job Cuts, Furloughs." Nobody should own a traditional publisher, that equilibrium is obsolete, that business is not viable.

But Forbes reports that Ms. Huffington has been given real White Space at AOL.  She has permission to do what she needs to do to succeed, unbridled by past AOL business practices.  That has included hiring a stable of the best talent in editing, at high pay packages, during this time when everyone else is cutting jobs and pay for journalists.  This sort of behavior is anathema to the historically metric-driven "AOL Way," which was very industrial management.  That sort of permission is rarely given to an acquisition, but key to making it an engine for turn-around.

And HuffPo is being given the resources to implement a new model.  Where HuffPo was something like 70 journalists, AOL is now cranking out content from some 2,000 journalists and editors!  More than The Washington Post or The Wall Street Journal.  Ms. Huffington, as the new leader, is less about "managing for results" looking at history, and more about identifying market needs then filling them.

By giving people what they want Huffington Post is accumulating readers - which leads to display ad revenue.  Which, as my last blog reported, is the fastest growing area in on-line advertising

Where the people are, you can find advertising.

As people are shift away from newspapers, toward the web, advertising dollars are following.  Internet now trails only television for ad dollars - and is likely to be #1 soon:

Chart source: Business Insider

So now we can see a route for AOL to succeed.  As traditional AOL subscribers disappear - which is likely to accelerate - AOL is building an on-line publishing environment to generate ad revenue.  And that's how AOL can survive the market shift.  To use an old marketing term, AOL can "jump the curve" from its declining business to a growing one.

This is by no means guaranteed to succeed.

AOL has to move very quickly to create the new revenues.  Subscribers and traditional AOL ad revenues are falling precipitously.

Source: Forbes.com

But, HuffPo is the engine that can take AOL from its dying business to a new one.  Just like we want Harry Potter digitally, and are happy to obtain it from Ms. Rowlings directly, we want information digitally - and free - and from someone who can get it to us.  HuffPo is now winning the battle for on-line readers against traditional media companies. And it is expanding, as announced just this week on MediaPost.com "HuffPo Debuts in the UK."  While this same week News Corp's UK tabloid, News of the World,  dies (The Guardian - "James Murdoch's News of the World Closure is the Shrewdest of Surrenders.")

News Corp. once had a shot at jumping the curve with its big investment in MySpace.  But leadership wouldn't give MySpace permission and resources to do whatever it needed to do to grow.  Instead, by applying "professional management" it limited MySpace's future and allowed Facebook to end-run it.  Too much energy was spent on maintaining old practices - which led to disaster.

And that's the risk at AOL - will it really keep giving HuffPo permission to do what it needs to do, and the resources to make it happen?  Will it stick to letting Ms. Huffington build her empire, and focus on the product and its market fit rather than short-term revenues?  If so, this really could be a great story for investors.  So far, it's looking very good.

Links:

Why Facebook Beat MySpace

Why most acquisitions don't work - with a look at News Corp and MySpace

Why to succeed you have go beyond your historical customers - and business

Early questions about whether AOL would give HuffPo white space to grow after acquisition

How Huffington Post already demonstrated its likelihood of success in 2009

How traditional compensation programs hurts Gannett

Crossing the "re-invention" gap in news - and failure at Tribune Corp.

Who's to blame for failure of Tribune Corporation?