The Inside Story of Arianna Huffington’s Departure from HuffPo

In 2005, Arianna Huffington launched the Huffington Post. As it became a huge success, Huffington, who had little experience in technology or journalism, saw her own brand grow in tandem. But life on the Internet can be cruel. And in a few short years, the site was experiencing a Digital Age version of a midlife crisis. It was reaching 26 million unique visitors per month, an astonishing number, but in the Internet business, sites either grow or shrink. And to grow, the Huffington Post needed more money. The obvious solution was to find a buyer with deep pockets, and in 2011 she found one: Tim Armstrong, a founder of Google’s vaunted advertising business, who had by then had become chief executive officer of AOL.

Huffington had met Armstrong after hearing him talk at a digital-media conference. They soon struck a deal. According to the internal memorandum about the transaction that Armstrong presented to the AOL board, now available on Smoking Gun, Huffington received around $21 million from the $315 million sale, $3.4 million of which was in options that would vest over a 20-month period. Since she had put none of her own money into the Huffington Post at the start, and owned only a 14 percent stake at the time of the sale, this was a sweet payday.

But Armstrong’s deal memorandum also revealed some implicit risks, including the possibility of a class-action compensation claim by the Huffington Post’s armada of 18,000 unpaid bloggers. Perhaps the biggest risk, however, was yet to be recognized by Armstrong: the unpredictability of the editor in chief.

Armstrong considered Huffington “a critical element to HuffPost . . . and her name is a key [intellectual property] asset,” he wrote at the time. But his memo to the board also, in retrospect, reveals that Huffington had overshot in the performance projections that she presented to AOL. In 2010, the site generated nearly $31 million in revenue but made a profit of less than $1 million. In 2011, Huffington expected to double revenues, to $60 million, and profit was expected to balloon to $10 million—no doubt helping to justify the purchase price, which was still more than 30 times Huffington Post’s projected profits. Armstrong seemed convinced by Huffington’s prediction that her business would explode in the coming years. She projected the company’s revenue and profit would surge to $115 million and $36 million, respectively, in 2012, and increase to $203 million and $73 million, respectively, in 2015.

That did not happen. In fact, the very year Huffington cut the deal with Armstrong, 2011, turned out to be the publication’s only substantially profitable year. “Just in case I get hit by a bus today,” says one former top editor who left about two years ago, “let me state this for the informal record: in my last year there, we made about $110 million in revenue, give or take, and we weren’t profitable.”

The Huffington Post’s financial challenges owed, in part, to Huffington’s lack of experience in managing a business, which resulted in questionable personnel decisions and bad ideas for new ventures, among other problems. Some of her biggest initiatives, such as HuffPost Live, her attempt at real-time Internet broadcasting, flopped. (“It was a disaster,” says a former senior executive, who remembers around $12 million being spent on the project. “Nobody was watching it.”)

Read more at Vanity Fair.


Photo by rappaportcenter

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