AOL Will Close Patch After Its Long Struggle For Profitability

TechCrunch has learned that AOL is closing down Patch, even though CEO Tim Armstrong said just last week that the company was looking at ways to save the hyper-local news service. We’ve contacted AOL and Patch for more information.

If Patch is shuttered for good, that represents a significant blow for Armstrong, who has nurtured the site as a pet project since launching it in 2007 while he was still at Google. AOL bought Patch in 2009 after Armstrong became its CEO. (TechCrunch is also part of AOL’s media portfolio).

As recently as last week, Armstrong was still defending Patch’s future, calling it “an asset with optionality” at a UBS conference on Dec. 11. His claims were thoroughly mocked by media observers (Media Bistro said his remarks were “Office Space-worthy,” while Ad Age’s Alex Kantrowitz wrote that Armstrong should have said “option with assanality.”) Armstrong claimed that Patch might be able to remain afloat an impending partnership with an undisclosed company, though it appears now that negotiations fell through.

They day before the UBS event, Patch co-founder and AOL exec Jon Brod announced that he was leaving the company early next year. Brod stepped down as Patch CEO in spring and was most recently heading AOL Ventures.

During the conference, Armstrong also defended Patch by saying that it has “more digital traffic than a lot of traditional players have,” echoing statements made by CFO Karen Dkystra during AOL’s conference call last month.

Dkystra hinted that the company was going to take several measures to save Patch, including cost-cutting in its “lowest-performing areas,” as well as “product enhancements.”

Despite AOL’s promises to save Patch, Dkystra’s statements were yet more signs that Patch was struggling to achieve profitability despite a large round of layoffs that began in August and resulted in about 400 people, or 40% of Patch’s workforce, losing their jobs.

In August, TechCrunch’s Alex Wilhelm ran estimates on Patch’s revenue that showed the site still had a shot at reaching profitability this year after its mass layoffs. Alex wrote that “assuming full layoffs, $75,000 per day in average sales not discounting for weekends, and strong ‘other’ income that AOL has repeatedly mentioned as possible, Patch could make financial sense.”

At the same time, there were signals that Patch was not going to hit those targets. Memos leaked by a Patch staffer revealed that Jim Lipuma, head of U.S. ad sales for Patch, said that the site “amassed [its] worst results of the year” over five days in August. Lipuma added “we had a $36K day yesterday, when we needed to be having $100K+ days. I understand why yesterday happened, but we cannot settle for days like this going forward.”

Patch’s failure to thrive has cost AOL an estimated $300 million (though the company claims that figure is closer to $200 million). Armstrong’s reputation has also taken a blow, most notably when he impulsively fired Patch’s creative director Abel Lenz for taking a photo at a meeting, an “emotional response” that he later apologized for. Armstrong’s attachment to Patch also helped trigger a proxy fight in 2012, when hedge fund Starboard Value L.P ran for three seats on AOL’s board while questioning Patch’s viability.

Armstrong won the proxy battle, but it was one of the factors that led to AOL selling $1.1 billion patents to Microsoft in April 2012 in order to placate disgruntled investors. In an earnings call after the patents sale, Armstrong told shareholders that he planned to make Patch profitable by the end of 2013, a goal that appears to have been unsuccessful.