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Are The Walls Closing In On AOL?

  • Fortune, Monday, February 4, 2008 11:45 AM

If Microsoft buys Yahoo, AOL could be left behind. Both Microsoft and Yahoo are the Time Warner company's most likely buyers; put Microhoo together and suddenly, AOL looks like "a wallflower at the prom."

As one ad exec says, "I now think that [Time Warner] pretty much has to sell, and they also have to sell really quickly...I don't see what else they do." But with the two most likely buyers out of the picture, AOL might be cheap. Who would be interested? Rupert Murdoch's News Corp., always looking for ways to better monetize MySpace, suddenly moves to the front of the line.

But Time Warner might be willing to bide its time. According to a source close to CEO Jeff Bewkes, Microsoft's Yahoo offer is being viewed "as a validation of AOL's strategy to focus on building up its capabilities as an online advertising platform." Despite the PR speak, that's not such a bad point. AOL through recent acquisitions is moving more toward becoming a provider of advertising services, firmly entrenching it as a third option for advertisers behind Google and a combined Microsoft-Yahoo.

"With consolidation of the online ad networks, this creates more air in the room for AOL to be competitive to advertisers," says Terence Kawaja, a partner at investment bank Savvian Advisors.

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