Plenty of speculation about a possible sale of AOL to Microsoft or a combination of Comcast and Google.
I think a Google-AOL deal would be difficult for several reasons. First, the two companies have very different cultures; Google focuses more on technology, while AOL is much more a media-driven company. Second, AOL has a huge number of employees–about 16,500 (according to Tom Berquist at Citigroup), compared to Google’s ~4000. Managing a merger of this scale is difficult, and it isn’t something Google has yet attempted. Third, AOL generates most of its advertising revenue from traffic generated by its dial-up customers. It isn’t clear what will happen to these users as AOL transitions to an “open” company that isn’t focused on subscription revenues.
Safa Rashtchy of Piper Jaffray is a bit more grim in his analysis: “By itself, AOL doesn’t have any major asset of use to Google, except perhaps their instant message system. I wouldn’t want them to overbid for it.” (via the NYTimes).
All that notwithstanding, AOL has sufficient scale to merit attention. For the first half of 2005, AOL:
- Had 27 million subscribers,
- Generated $4.2 billion and $692 million in revenue and operating income, respectively, and
- Owned a variety of well-known brands, including MapQuest, Moviefone, Advertising.com, and, of course, AOL Instant Messenger (see table for market share numbers, taken from News.com)
Favorite statistic: AOL sent roughly 660 million “free account” CDs via snail mail over the years (US population = 295 million).
All that said, I think Microsoft has the most to gain or lose in any AOL deal. Although MSN has made a number of improvements in the past year, it still lags Google and Yahoo in many key areas. The recent announcement that MSN and Yahoo will open their respective IM networks gives Microsoft interesting leverage–by adding AOL IM to the mix, MSN could effectively control the game. Most important, Ballmer seems determined to improve MSN’s competitiveness. Given that, and the cultural differences between AOL and Google, my guess is that Microsoft will end up with some sort of deal or partnership here (even if the price tag is high).
Too bad there isn’t a way to bet on the action at Yahoo’s Tech Buzz game…
Regarding cultural differences, could AOL be run essentially as a seperate business entity for now with a few orders like “use Google search” and “interoperate with GTalk”? Why integrate other than for financial reporting and compliance with laws? Yes there are lots of issues but could this work?
As far as comps go: EBay just dropped $4B on a pretty small IM network when you compare it to AOL’s. This is no reason to do a deal but it does show you what people will pay for these networks. These networks are worth a lot because they are closed. Although Google is commited to an open IM network, the GTalk-AIM network will be effectively closed because there will be no one left to federate with.
Left by Nivi on October 14th, 2005