Can Arianna Help AOL Figure Out How Online Content Works?

The big news in the online media world today is that AOL (s aol) plans to swallow Huffington Post for $315 million and hand over control of its entire editorial and content operations to founder Arianna Huffington. Although Om is skeptical of this deal for some very good reasons, I think it makes a lot of sense for both sides — growth has been slowing at Huffington Post, and they would likely not be able to really boost the size and scale of the site without a lot more investment. AOL, meanwhile, needs someone to take charge of its content strategy, which has been all over the map and has yet to produce substantial returns.

With this deal, the HuffPo’s founders get a nice return on their investment, and AOL gets an identifiable brand in Arianna Huffington, as well as someone who understands how content works online now. From a content point of view, the Huffington Post is doing exactly what AOL does — or wants to do — but even better, because most of its content is completely free. Its biggest strength is as a smart aggregator, not a content creator, and that’s what AOL needs help with (whether will people want to create content for nothing when they’re working for AOL instead of Arianna is another question).

Huffington Post understands content discovery

Among other things, HuffPo has shown that it really understands how readers discover and engage with content online: it was one of the first to implement Facebook Connect in a really aggressive way, and that helped to drive phenomenal amounts of traffic to the site, as well as millions of comments. Every one of those comments (which are all moderated by hand, in what is likely one of the company’s biggest editorial investments) is a vote for a story and for the site, and so are all the “likes” and sharing that readers do through Facebook and Twitter and other networks.

To take just one recent example, a December blog post about Sarah Palin was read by over 700,000 people, was shared by readers more than 24,000 times on either Facebook or Twitter, and generated over 7,500 comments.

The biggest issue is whether Arianna can somehow make sense of AOL’s vast — and somewhat confused — content strategy. There are old bits of the previous portal business still lying around, many of which have been duct-taped to newer ones such as TechCrunch in “towns” based around content themes, but it’s unclear whether that is really going to work or not, especially with advertising revenues continuing to fall. Then there’s the $75-million-plus that Tim Armstrong has spent on the project, a “boil the ocean” attempt at hyper-local, and a Demand Media-style effort called Seed that AOL is hoping can produce enough content to generate substantial revenue.

The “town” strategy and Seed both need help

The two areas where Arianna and her team can make the biggest difference with are Seed and figuring out the content “towns” strategy. It’s obvious that AOL has been trying to work out which topic segments are worth investing time and money in and which should just be outsourced — after spending millions to hire expensive talent for its sports content unit FanHouse, for example, the company recently laid off most of the staff and licensed the entire thing to competitor Sporting News. Buying HuffPo and sites like TechCrunch make it obvious AOL has decided that tech and politics are going to be core businesses on the custom content side. But it needs help figuring out what else to do.

Seed needs someone to take charge of it as well. While the project, which is being run by former New York Times writer Saul Hansell, has not gotten a lot of attention since it experimented with an ambitious attempt to crowdsource the writing of hundreds of biographical pieces about all the bands at SXSW in 2010, it appears to be the core of AOL’s content-generation plans as leaked in a recent internal strategy document. In a lot of ways, it’s an attempt to do the same thing that Demand Media and Associated Content are doing — namely, paying people tiny sums of money to produce generic, long tail content that can be found easily via search and be monetized.

Two big problems: This business not only has a couple of major competitors already (one of which, Associated Content, had AOL CEO Armstrong as an investor while he was still at Google) but is also facing a stiff headwind from Google (s goog), since there is a growing sense that pages produced by this kind of “content farm” model clog up search results (I wrote more about this in a recent research report for GigaOM Pro, subscription required).

Huffington Post’s major contribution to online content was the realization that you don’t really have to pay people for their content — and in fact, as the former owner of Demand Media’s (s dmd) eHow unit said recently in an interview with me, sometimes you get better content if you *don’t* pay people. Whether Arianna Huffington can make this work on the kind of scale that AOL wants remains to be seen, but she is likely to do at least as good a job as anyone else at the web giant, and probably better. And with this deal, AOL takes another giant step in its ongoing attempt to build (or acquire) new businesses quickly — so that it can escape the continuing collapse of its existing ones.

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