Conflict Zone: AOL Sets Up TechCrunch's Arrington as a VC, but Still Lets Him Write
TechCrunch founder Michael Arrington announced that he's leaving AOL to become a venture capitalist. That is, if he ever really stopped being one. AOL will be the primary backer of Arrington's tiny $20 million fund. And Arrington will keep writing for TechCrunch, though not in a supervisory role.
Arrington has clearly wanted an exit strategy, although he has vehemently insisted otherwise. (He does like to polish his image.) But for AOL to give him this deal, back the fund, and keep him as a writer? It only shows how desperately CEO Tim Armstrong is torn between making look like a real journalistic operation and piecing together enough side work to keep the company afloat.
Big man on campus
As Felix Salmon noted on Reuters, Arrington has been AOL's highest profile writer after Arianna Huffington. I don't use the word journalist for two major reasons. One is that Arrington doesn't see himself as one.
The other is the long list of conflicts of interest that Arrington has had because, specifically, he wants to invest in companies and also write about them, so long as he is transparent. Let readers make up their own minds.
The problem is that it's impossible, because Arrington hasn't regularly or predictably disclosed conflicts -- at least, not until after someone else noticed and pointed them out. I'm not saying that he never mentions conflicts of interest. But if you can't tell whether he will or not in advance, you never really know.
Plugging in
And yet, Arrington and TechCrunch have a sizable rep for breaking stories, thanks in part to those very conflicts. Arrington is heavily plugged into the tech money market, especially among start-ups, but also companies that have been around longer. He hears far more gossip and rumors than most people because he's a complete insider.
Having that type of access can be a boon, although it's a different type of connection than a journalist should and can rightfully have. The more of your own interests you tend, the more those interests take precedence over informing others. In fact, Arrington succinctly summarizes the problem:
But when you read a tech blogger call a CEO "tough and misunderstood," should you know that the CEO in question is social friends with that blogger, and leaks confidential information to her? The answer is yes. But you'll never know. Or when the same CEO is called incompetent by another blogger who was just turned down by said CEO to speak at his conference. Disclosed? No. Conflicted? Yes.Armstrong's agony
Again, Arrington never claimed to run a journalistic organization. (In fact, I also agree with him that there are plenty of writers with conflicts, and few willing to burn bridges when it becomes necessary, and it almost always comes to that.)
AOL, however, does. That's put the company squarely in a conflict between doing journalism and following a brand strategy to make money.
Making money is good. More older media companies should do more of it. (They wish.) But in backing Arrington and letting him continue to write, AOL crosses the line. It's understandable. The company is running through cash, revenue keeps falling, and it's not clear that Armstrong will be able to pull things out.
AOL wants it all
Unfortunately, this is a losing approach. A $20 million fund is next to nothing in Silicon Valley, and the payback from investments has too long a horizon. That is, unless a company gets acquired quickly or there is so much buzz that others are willing to buy stock at high, if unjustified, valuations. The fund will likely have a low return in the short term, which is exactly where AOL needs to turn things around.
Furthermore, AOL continues to undermine its own journalistic claims. The sad thing is, although Arrington has many contacts, it's not as though the other writers at TechCrunch are editorial eunuchs. Arrington isn't irreplaceable.
So AOL is selling out its own reputation for next to nothing. But then, this is what often happens in conflicts of interest -- especially when the conflicted parties are desperate. And make no mistake, AOL is more conflicted than Arrington has ever been, and that's saying something.
Afterword
Arrington has grown increasingly displeased -- in public -- with AOL. The latest example was when he railed about the difficulty of AOL's expense report procedure. The reason was that at one point, an employee allegedly ran a scam, costing the company $1 million in falsely billed services.
In passing, Arrington mentioned that he shredded $1500 worth of receipts "because it wasn't worth the pain." What were they for? "Some taxi expenses and a restaurant bill." Maybe that's another reason why AOL wants a third party to examine expense reports. Where did the taxi go? From Chicago to New York?
Related:
- AOL Circles the Wagons With Its Bankers
- It's Time for AOL to Embrace Its Inner Takeover Target
- AOL Earnings: Is Patch a Bomb -- or a Secret Weapon?
- Did TechCrunch's Arrington Just Invest in an AOL Exit Strategy?
- AOL's Brewing Conflict: Brand Versus Journalism
- Tech News Coverage Conflict of Interest? It's Not So Uncommon
- AOL Buys TechCrunch, but the Real Crunch Will Be in Culture
- Arrington CrunchPad Suit Paints Him As Naïve
- TechCrunch Fails to Disclose Conflict of Interest in Kindle Story
Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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