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Crunch Time Is Over at AOL

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The controversy over AOL (NYSE: AOL  ) TechCrunch's founder and co-editor, Michael Arrington, has come to a dramatic conclusion.

Last September, AOL purchased popular tech and startup blog TechCrunch for a cool $30 million. A few short weeks ago, Arrington announced that he was starting a venture capital fund, known as the CrunchFund, to invest in startup tech companies, and notably that AOL would be one of the fund's limited partners -- and one of the largest backers.

This arrangement prompted some very justifiable concerns about conflicts of interest, since it would mean that any AOL-owned sites would have a financial incentive to give positive coverage to any company that the fund invested in. Initially, the company was going to carry on as usual but would disclose any conflicts of interest. Tensions then arose between Arrington and Arianna Huffington of also-acquired Huffington Post.

In the wake of the disagreement, Arrington has left TechCrunch and co-editor Erick Schonfeld is now editor-in-chief, while AOL hasn't changed its plans to invest in the fund.

This is where it gets interesting. Sites like TechCrunch rely heavily on their talented pool of writers and journalists. It's entirely possible that Arrington could take a big chunk of his writers with him and start a competing site, which has already happened to AOL earlier this year. AOL-owned Engadget's former editor-in-chief Josh Topolsky took off in March along with eight of his most talented writers. If TechCrunch meets a similar fate, AOL's $30 million won’t go very far.

The underlying problem here is that AOL doesn't have its ducks in order. It failed to recognize beforehand that the arrangement was bound to draw heavy scrutiny and that there would inevitably be some casualties. Like Yahoo! (Nasdaq: YHOO  ) , AOL continues to focus more on content creation rather than content relevance. Google's (Nasdaq: GOOG  ) knack for relevance is its key to success. Until AOL recognizes this, don’t be surprised if earnings continue to suffer.

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Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns, and Motley Fool newsletter services have recommended buying, shares of Yahoo! and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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