What does the long-awaited consolidation among the big portals mean for AOL?
- AOL cannot survive in current form (big generalist with lots of properties and no clear strategy). If Microsoft-Yahoo goes through, AOL will be a distant, nebulous, US-centric also-ran in a business dominated by two elephants.
- AOL should be spun off or sold in pieces (or both). It has been clear from the past eight years that Time Warner has no interest in “synergy.” (If it did, there might be some advantage to keeping AOL within the Time Warner fold). Given this, AOL should be spun off immediately. If Microsoft/Yahoo goes through, it will be the only remaining belle at the ball, and lots of other parties might be interested in all or parts of it.
- AOL (or pieces of AOL) could still end up with Microsoft or Yahoo. After the Microsoft bid, pundits rushed to conclude that AOL could no longer be combined with Microsoft or Yahoo. We think this conclusion is wrong. Even if AOL, Yahoo, and Microsoft combined forces, the combination would still be smaller than Google. Why couldn’t regulators be persuaded that this should be allowed?
- AOL could influence the fate of Yahoo and, in so doing, improve its own position and value. Yahoo is desperate to put together a non-Microsoft solution. AOL could have a hand in what happens to Yahoo, and improve its own competitive position at the same time.
So what should AOL do? Get on the telephone to Yahoo, Microsoft, Google, private equity firms, and investment bankers. Specifically:
- AOL should immediately talk to News Corp and private equity firms about being a part of a competing Yahoo bid. Perhaps AOL could be spun off and the two companies combined (with MySpace?).
- AOL should talk to Yahoo about putting together a competing Yahoo transaction, in combo with private equity. Same as above, except without News Corp.
- AOL should talk to Google about a much tighter partnership if Yahoo-Microsoft proceeds. If nothing else, this would increase the pressure on Microsoft and Yahoo to factor it into any transaction.
The other alternative: Allow the Yahoo situation to proceed, but restructure AOL into separate companies and find the best homes for them. Specifically:
- Roll up the content businesses (Finance, news, TMZ, etc) into an Internet media division. Perhaps Time Warner would like to keep this.
- Put AIM, ICQ, and Mail into a single “communications” business and merge it with Yahoo, Google, Microsoft, or Skype.
- Position Platform A as the leading ad network, and eventually transform it to sell and place ads for all media (as Google wants to). Keep within Time Warner or spin out.
- Sell the access business to Earthlink or a cable company.
What not to do: Sit around. Hope. Pray.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.