If you sell lemonade for $1 and it costs $800 to make it, that’s not a great business.

Robert Peck, managing partner at Quasar Capital Advisors, a consultant to Internet and technology companies, speaking to the Wall Street Journal.

The Wall Street Journal reports that AOL is spending approximately $160 million a year on Patch, its hyperlocal news network.

Unfortunately, Patch’s revenue model is an ad-play and people just aren’t visiting these local sites in large enough numbers to make them attractive to advertisers. Ever hopeful, Tim Armstrong, AOL’s CEO, says the Patch network will eventually be profitable.

Via the WSJ: “AOL is spending about $160 million a year on Patch, which equates to about $150,000 to run each individual Patch site annually, according to an analyst’s estimate. AOL first focused on building traffic to Patch sites, and just recently started ramping up ad sales. Mr. Armstrong said in a call with investors last week that while revenues for Patch sites are small, they are growing quickly and on track to be profitable over time.”

The larger issue is that after spending $315 million on the Huffington Post and over $90 million to buy Techcrunch, 5min Media and Thing Labs in order to transform itself into a content company, overall traffic growth across AOL properties is declining.

Wall Street Journal, AOL Growth Comes at a Cost: After Acquisition Binge, Internet Company Faces Fierce Competition for Ad Dollars.

(reblogged from futurejournalismproject)

Today’s quiz: What company derives 96 percent of its revenue from advertising, has a video platform that is currently negotiating with the National Basketball Association, a movie studio and various celebrities, and is developing a subscription service that would be plug-and-play for publishers and consumers the world over.

Instagram’s vision of a better-looking world


Source: Instagram

We’re hearing more about the San Francisco startup Instagram that allows users to snap a picture add a cool filter, and share with friends.

It just passed the 1 million user mark and integrated with location sharing service Foursquare.

Many have predicted 2011 will be the year of awesome photo apps. I can see why. Personally, new photo filters have confused me into believing I can actually take pictures (I can’t, but adding filters makes everything more glamorous). And I have no doubt that we’ll continue to see more photo sharing apps pop up.

Instagram CEO Kevin Systrom says the photo sharing app is aiming to become the “dominant photo sharing app on mobile.”

But as always, you have to wonder about the money-making aspect of a startup like Instagram. They’re new, and like many new startups, the business plan isn’t the number-one priority.

Systrom says advertising is one potential profit source. For example, take Banana Republic’s clothing line. A tool like Instagram could allow users to “follow a brand in an interesting way or see products presented to you in a beautiful way,” he says.

I get it. A white turtleneck looks cooler with a “1977” filter.

And as Facebook continues to expand, I wonder if a company like Instagram would make its way onto their list of startups to acquire (in recent months, they scooped up Hot Potato and Drop.io).

"We’re here to build a big company – the question is how do you get to your vision the quickest?” Systrom said. “We’re looking to be very big and looking at all the opportunities to get us there … first and foremost as an independent company.”

The app is currently only available on the iPhone, although an Android version is in the works. But if you don’t have either, the company is working on an API for a Web version that would allow users to upload their pictures and use Instagram online.

I’m interested in whether we’ll see media outlets using Instagram to give a behind-the-scenes look at stories. NPR has started.

So we’ll give it a shot. CNNMoney Tech has set up an Instagram account. We’ll be heading to CES and taking cool pictures that will appear much cooler with one of the 12 filters the service offers.

Posted above is our shot of CNNMoney’s Poppy Harlow, seconds away from her television segment. Follow us on Instagram at cnnmoneytech for an inside look at what goes on in the newsroom and out in the field. -Laurie