Around the Net
Yahoo-AOL Merger A No Brainer?
- All Things D et al, Friday, October 1, 2010 1:26 PM
"Big investors" want Yahoo and AOL to merge, AOL CEO Tim Armstrong to become CEO of the combined company, and Yahoo CEO Carol Bartz to become Chairman, according to BoomTown's Kara Swisher.
"Armstrong," sources tell Swisher, "has not
shied away from the idea."
Certainly, the imminent departure of Yahoo's U.S. head Hilary Schneider, -- along with two other top execs -- a stagnant stock price, and weak growth
are creating pressure on CEO Carol Bartz (and Yahoo's board) to do something dramatic.
Under the headline, "Game over, Carol Bartz," Fortune writes: "Yahoo's stock price is abysmal, employee morale is low, and top-level executives are fleeing. What's left?
An Internet property slowly limping to its death and a mouthy CEO with no vision. [Bartz's] days are numbered."
"It's ridiculous that they haven't already," Business Insider's Henry Blodget says of the would-be merger.
"Yahoo and AOL are both in the same business,
and it is a business that benefits greatly from scale. Yahoo and AOL are both basically media companies. They both use technology extensively, but their core competency is producing content to attract
an audience and then selling display ads against that audience."
Adds Blodget, "They also both operate duplicative mail, instant-messaging, sports, finance, news, maps, and other
services, all of which currently compete with each other. That is senseless. By combining, Yahoo and AOL would achieve greater scale and reduce duplication."
And Swisher notes,
however, New Corp. could potentially give Yahoo some competition if it were to go after AOL. "The reason is that its own digital efforts, especially at the MySpace social networking site, have gone
sideways," she writes.
"And there's history: News Corp. tried to facilitate a merger of MySpace, MSN and Yahoo into a company codenamed 'TrafficCo' at the time Microsoft was attempting
a takeover of Yahoo."
Meanwhile, "AOL is affordable, even for Yahoo," according to Blodget. "AOL's enterprise value is about $2.4 billion. Yahoo's is $16 billion. Yahoo could
probably get AOL for $3 billion, maybe $3.5 billion. That's only 20% dilution."
Couldn't agree more with the no brain part.
This merger makes a lot of sense but it leaves out the scenario that Tim Armstrong is setting up AOL for a Google acquisition that could then be integrated with YouTube.
Remember, Google is the search engine for AOL. Tim came from Google and brought an unexpectedly large number of Google people into AOL.
If the government would not step in to block it, Google could spend $3 billion to acquire AOL as if it was pocket change.
@Mark,
Here's why this merger makes no sense whatsoever...
The missing link in the online ad landscape is scalable audience reach. I'm not talking about scaling the supply, which both Yahoo and AOL already do, I'm talking about scaling the consumer demand, and no one demands more advertising, which is why display ad CTRs are firmly ensconsed at statistical zero and why the digerati are now distancing themselves from any response-based metrics (despite the fact that the CTR was the coin of the digital realm not so long ago).
You correctly point out the search-based connection between Google and AOL, but search speaks to informed intent, and therefore talks to customers instead of prospects, and branding is a function of reaching prospects.
Combine Google, AOL, Yahoo, MSN, etc., together in one big search-centric behemoth, and you would still have CTRs at statistical zero, because they all push a work product - ads - that no one wants.
The idea that more content choices will attract more people is sound reasoning, but none of those folks choose ads, and that's why the notion of further scaling the supply is sheer folly.
Besides, AOL tried once before to create the world's biggest media company and we all know how well that worked out (it's not referred to as the worst deal in American business history for nothing).
The bottom line: You can't scale what you don't reach, and you can't reach anyone with display advertising that no one wants and which everyone is equipped and inclined to avoid.
Want some proof? What advertiser's banner ad graced the top (the pemium position) of this article? Now multiply that behavior by a few billion and you get the net value of any proposed merger.
I agree with King Jack (and Mike Einstein)...