CrunchFund Saga Should be a Non-Event for AOL but Isn’t

The departure of TechCrunch founder Michael Arrington could have adverse consequences for AOL’s (NYSE:AOL) business and casts an unbecoming light on its leadership as the media world continues to whine over potential conflicts of interest between AOL’s TechCrunch and Arrington’s poorly named CrunchFund. ^[1] Following the announcement of the fund and the ensuing confusion of what Arrington’s role with AOL was going forward only added to the confusion. What should have been a simple announcement turned into a mess where AOL management including AOL CEO Tim Armstrong and Ariana Huffington appeared confused with conflicting statements on Arrington’s role and the treatment of TechCrunch. So while this should be a non-event, the bigger question is whether or not this provides a window into how AOL runs and could explain why its losing ground to competitors like Google (NASDAQ:GOOG), Facebook and Yahoo (NASDAQ:YHOO) on most metrics.

We have a price estimate of $14 for AOL stock, which is roughly in line with the current market price.

AOL’s Catch-22

Arrington’s announcement regarding the launch of his own venture fund has clearly been a horribly botched PR job that journalists from all walks have jumped on. These folks have pointed out that the fund, which plans to invest in early-stage technology companies and Arrington’s position as Co-Chief Editor of TechCrunch, would create a clear conflict of interest. This seems simple enough.

However TechCrunch loyalists have defended the decision and Arrington given his record of disclosure, and we as many others, give him the benefit of the doubt that given his background, there would be no abuse or preferential treatment despite the potential for conflicts of interest. (A conflict of interest that exists in almost all types of business journalism.) What confuses us is how this could have been so botched up by AOL management and how no one could have seen this coming given the obvious ways it could be perceived by outsiders.

On the other hand, letting Arrington go isn’t easy.

He has been one of the most prolific and influential voices on technology matters, which has played a big role in building TechCrunch’s credibility so far. Whether TechCrunch remains the same post-Arrington is a big question mark depending on who they hire and the level of involvement AOL will now take in dealing with its affairs.

With already dwindling revenues in many of AOL’s businesses and drooping traffic, it doesn’t want to change anything at TechCrunch if at all possible and kill the machine that has been working well for the last year that it has owned it. On the other hand, it can ill afford the bad press it received and so does not want something similar to to happen again at let’s say Huffington Post.

So where to from here?

It makes sense for Arrington to step down formally and clear the air himself, but given how engrained he is at TechCrunch, this might be difficult. He could keep his head low and wait for this to blow over, but that seems unlikely given his personality. So all eyes are on AOL and whether or not it will be forced to make a decision on how to deal with TechCrunch.

See our complete analysis for AOL’s stock here

1. The New York Times: A Tech Blogger Who Leaps Over the Line [↩]