It May Be Time for AOL To Make Up Its Mind

A month ago, I wrote a blog called "Everyone Wants To Take AOL To The Dance." In it, I talked about Time Warner entertaining suitors for their AOL division. Initially, it was just Microsoft in talks with Time Warner. Then, on 10/13, Google and Comcast approached, suggesting a joint venture with AOL. Less than a week later, on 10/18, I wrote that Yahoo was also throwing its hat into the ring ("AOL Has ANOTHER Suitor").

In a "last in/first out" move, Yahoo announced on Thursday that they were backing out of the running to buy a stake in AOL.

The New York Times reported that "Time Warner signaled it wasn't interested in the terms Yahoo was willing to offer." The story quoted the Wall Street Journal, saying that "Time Warner is still in talks with . . . Google and . . . Microsoft and the Journal said the two companies are neck-and-neck in the talks." The speculation was that AOL might chose a partner as early as next week.

AOL's decision will have huge consequences for Google. AOL already uses Google for its search engine, and that partnership accounted for 11% of Google's revenue in the first half of this year. Google's interest in a deal with AOL has been seen as a defensive move to protect itself and to keep AOL out of Microsoft's clutches. "If AOL teams up with Microsoft, it would realign the top players in a [search engine] market now dominated by Yahoo and Google . . . The combination of AOL and MSN would turn the industry on its ear and make us reassess the assumptions of the power players," according to Jeff Lanctot as quoted in BusinessWeek Online.

But, you see, the thing is that Microsoft and AOL have been in discussions since January, and they still haven't come to agreement. According to BusinessWeek Online, "Microsoft wants to team up with just one part of AOL's business--its Web properties--leaving the declining dial-up subscriber business behind."

AOL may also have some trust issues with Microsoft. In a 9/20 article, BusinessWeek Online reported that Microsoft Chairman Bill Gates once made a threat to AOL's Steve Case, saying "'I can buy 20% of you or I can buy all of you.'" Not exactly the stuff of warm, fuzzy relations.

On the other hand, AOL has had a successful partnership with Google for some time. Their search engine joint venture has pumped dollars into AOL at a time when its dial-up business is hemorrhaging.

Will AOL walk away from a positive partnership, run the risk that the MSN search engine might not bring in as much revenue as Google's search engine--and climb into bed with a partner they may not trust?

Stay tuned for answers.