Commentary

AOL And Yahoo Should Merge

by Joe Marchese , December 16, 2008

By merging and integrating their content, social and advertising assets, Yahoo and AOL would be best positioned to face the threat of becoming irrelevant as MySpace, Facebook and other, more social, portal replacements continue to grow. I have pointed out before that Yahoo and AOL both have considerable social assets in the form of members using email, IM, Answers, Fliker, fantasy sports, games and many other properties. But the availability of features within social networks that can replace many of the benefits people get from using Yahoo and AOL's suite of standalone products is a massive threat on the immediate horizon.

Both Yahoo and AOL are doing some things right when it comes to making their offerings more social and interconnected. Kara Swisher points out some of the more positive efforts made by AOL, in the form of improvements to its major acquisition play in the social space, Bebo. Yahoo, for its part, is making efforts to more seamlessly integrate its suite of products in order to offer a value greater than the sum of its parts to its users. But for all of their efforts, both companies are still failing to keep pace.

The advantages of a merger would be an immediate increase in scale (users, traffic, and search volume) and the ability to reevaluate how particular pieces of both companies' "social tool set" should/could fit together from a top level.

Not that a merger of this size would be easy. There would be considerable business risk associated with a rocky integration, but alternative initiatives to reset each company's overall strategy have not been successful to date; the reorganization that would accompany a merger might be just what both firms need. Combining search volume is an immediate plus (even if it is eventually outsourced to Google anyway), and the combined advertising capabilities of both companies would provide an extremely comprehensive set of tools, allowing marketers one-stop-shopping for online campaigns -- almost.

Notably missing will still be Yahoo and AOL's ability to deliver the type of social marketing that marketers will come to expect over the next five years. The Facebook and MySpace marketing experience will condition marketers to expect that online campaigns will include not only message delivery, but consumer engagement, feedback and relationship management. We are already seeing basic display advertising take a massive hit in CPM. This downward trend will continue for those that cannot clearly demonstrate the value of display advertising as it relates to increased people-brand interaction (sales or social). Yahoo and AOL have the tools to make this possible. Both have yet to really unlock this potential for marketers -- but then again, neither has anyone else.

Yahoo and AOL are far from irrelevant today. In fact, any online media plan that hasn't vetted the opportunity with both for reaching an online audience likely has a gaping hole because both have such an enormous footprint in consumers' digital lives. But both organizations must take advantage of their current positions to create new value for users and advertisers if they hope to maintain their leadership positions. Perhaps one way to do this is to work together?

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3 comments about "AOL And Yahoo Should Merge".

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Richard Monihan, December 16, 2008 at 12:30 p.m.
Aggregation of content was a viable concept at the onset of the internet, just as limited choice was during the early years of TV. However, as online users become more adept at navigating the once confusing lanes of the information superhighway, aggregators of content become less meaningful - just as the large TV reach vehicles have become less meaningful.
Choice has a funny way of making reach vehicles less important.
This doesn't mean less valuable, however. What makes both AOL and Yahoo less interesting to users is a lack of Owned and Operated content. Each one is primarily a starting point and not much more. Perhaps a few articles get read, some games played, or emails opened. But the really valuable online users shun these outlets when it comes to anything else.
Merging is a good short term solution to a problem, but it won't make the combined entity any more important. It will stave off the death of one or the other for a period. But at some point, these sites have to have meaningful content that can't be found anywhere else. That is the only way to keep users visiting and interested. Aggregation is the 1990's internet.
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Michael Senno from New York University, December 16, 2008 at 2:23 p.m.

I see few other options for either firm, but to merge. Particularly AOL, they are not positioned for long-term sustainability in this market. The comment above about content is not to be overlooked. These companies need access - whether its in the form of partnerships (such as the Yahoo-Turner sports deal) or possibly even a partnership with a television network for content sharing. Both companies should merge, but do they have the right assets to complement each other - maybe not.

Mark McLaughlin, December 16, 2008 at 5:26 p.m.

I completely agree with your sentiment but I'm afraid it's sentimental. We can only wish that AOL and Yahoo were looking at their futures with an emphasis on large and highly engaged audiences. But, the reality is that their business strategies are based on Platform A and the Right Media Exchange. They both want to be the huge monetization engine for non-premium display advertising. If they do merge, it will be because they want an even bigger monetization machine for display advertising to try to stay abreast of Google.