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Tacked to the newsroom walls in AOL's downtown Manhattan headquarters are pages and pages of Web traffic data. The numbers tell the growing number of journalists who work there how well their articles are performing and—thanks to the ads that appear alongside them—who's paying the bills.
Judicious use of Web-analytics software is a hallmark of what AOL Senior Vice-President Marty Moe calls the "newsroom of the future," a large and growing news gathering operation at the heart of AOL's turnaround effort. As demand dwindles for the dial-up Internet service that made AOL (AOL) a tech powerhouse in the 1990s, Chief Executive Tim Armstrong wants to jump-start growth by creating original online content and selling ads to appear with it.
To succeed, Armstrong, who will complete his first year at the helm in March, is leaning on AOL's background in technology. Rather than merely craft articles and passively post them on the Web, as many newspapers and magazines do, AOL is using software to determine which articles to write and then give journalists up-to-the-minute data on how much traffic those articles generate. It helps the journalists collaborate in low-cost ways, too. "We really want to enhance journalism with technology," Armstrong says in an interview. "We feel like we have a strategic window to invest in quality content."
AOL has hired more than 500 full-time journalists, many of them veteran reporters and editors seeking refuge from the business implosion in print journalism. The company also buys material from more than 3,000 freelance contributors. As AOL becomes better known for creating its own "quality content," advertisers will pay more to put their advertising on its pages, says Armstrong, former head of U.S. ad sales at Google (GOOG). "Brand ads should be a lot bigger on the Internet today and I think it's going to take hard work and creativity."
Armstrong, who led AOL through its spinout from Time Warner (TWX) in December, hasn't said how much ad revenue he expects from the news operation. But he signaled his commitment to beefing up news when he largely spared journalists from a round of 1,400 job cuts in January. "The journalism enterprise was not affected at all," says Moe.
Startups such as Huffington Post and TechCrunch are similarly attempting to build online media companies from the ground up. Few, if any, are trying on such a grand scale. Media behemoths, meanwhile, are still struggling to find profitable ways to translate print operations to the Web. "The way is open for AOL to innovate," says Jay Rosen, a professor of journalism at New York University.
AOL will need to persuade Wall Street that it can succeed where others have failed, says Mark Mahaney, an analyst at Citigroup (C). "The market is skeptical that they've got a new mousetrap here," Mahaney says. Since it began trading publicly in December, AOL's stock has hovered near its opening price of 25.07. On Feb. 3, AOL reported a fourth-quarter profit. Still, the editorial operations are likely losing money, Mahaney says. Ads account for $471.6 million, or about 58% of the total. On Feb. 19, the stock rose 72¢ to 25.15.
To keep costs in check, some of AOL's news and blog sites, including Politics Daily and Engadget, are entirely run by virtual workforces. Editors and writers interact and produce news remotely, using tools such as chat.
AOL plans to continue hiring editorial staffers. In February, the company signed Marty Steinberg, a 28-year veteran of the Associated Press, to be executive news editor of AOL News. Armstrong also plans to replace Bill Wilson, the departing head of its media business, with fellow Google alumnus David Eun in March.
News editors' computers come equipped with software—created internally by combining data from AOL's own analytic tools with such other resources as social network feeds and Google's trend-tracking service—that provides daily updates on the number of Web clicks AOL's stories receive. "Audience growth and audience engagement have to be the things that we judge the most off of our journalist investments," Armstrong says. AOL is even considering sharing a portion of quarterly profits with staffers whose work fetches the most page views.
In January, AOL ranked seventh in overall traffic on the Web, with 87.6 million unique visitors, according to Nielsen—a drop of nearly 2% from a year earlier, when it ranked fifth. Its news sites make up about one fourth of that traffic, or 22.5 million page views.
To help get traffic flowing back to its site, AOL is letting user interest play a role in story assignments. Editors use internally developed software to figure out what topics are hot on the Web, based on activity on such sites as Google and Facebook. Frequently, stories are assigned to explore such popular topics as "How to Open Champagne," which was published in December on AOL food site Slashfood.
Seed, a service AOL launched last year, similarly pays freelance journalists to write on subjects in demand. For example, Seed recently asked for short, 100-word blurbs on "Your best packing tips." Entries are edited for quality and accuracy and then posted on AOL sites. Vetting outside contributors and thoroughly editing the submissions is crucial to keeping AOL's brand intact, Armstrong says. "I don't think we would call it user-generated content," he says. The company's January acquisition of StudioNow, for $36.5 million, will let videographers post content on AOL sites for pay.
Some journalists fret that by letting the readers decide which stories get assigned, media outlets risk turning their attention away from hard, investigative news. "My fear is that once they start analyzing where their traffic comes from and where their dollars come from, they decide maybe journalism should go after Hollywood celebrity stuff and sports figures who are doing dope," says Alan Mutter, who writes about the media industry on the blog, Reflections of a Newsosaur.
That hasn't been the effect for James Graff, who joined AOL after losing his job as a senior editor at Time. "We're breaking stories," Graff says. "We're feeling the kind of hum that comes from the fact that we're building something."