With three weeks until the end of the year, many eyes are on Time Warner's AOL unit to see which direction the company is going to take. Will AOL increase its relationship with current partner, Google? Or will AOL sign on with Google's archenemy, Microsoft (MSN)?
This is the sixth story I have done on the wooing of AOL. If you want to follow the thread, here's the list:
10/13 Everyone Wants to Take AOL to the Dance
10/18 AOL Has ANOTHER Suitor
10/20 AOL Announces Layoffs
11/14 It May Be Time for AOL to Make Up Its Mind
11/15 Pre-Nuptial Talks Continue
In my last story on the subject on 11/15, I said, "I may be wrong, but this makes me wonder if Microsoft isn't ahead in the marriage sweepstakes."
On 12/7, both the Wall Street Journal (WSJ) and BusinessWeek Online (BWO) did stories about AOL's forthcoming decision. BWO agreed with my earlier assessment, saying: "Many outside observers believe that MSN has the edge."
"The talks have been scaled back since earlier this year, when they included the prospect that Time Warner would sell a minority stake in AOL. But Time Warner has decided that the legal, regulatory, and managerial obstacles of a partial sale would be too complex, and it prefers to strike a commercial agreement instead." (BWO)
In an earlier story on 11/11, BusinessWeek Online speculated that a Microsoft investment in AOL might raise antitrust issues that could take up to a year to resolve. AOL doesn't have that kind of time. They need to generate ad-revenue growth now. In addition, investor Carl Icahn warned Time Warner on Wednesday that he will be closely watching any deal they make for AOL, and that they had better not under-value the company. For these reasons among others, it appears that Time Warner has decided not to sell an outright interest in AOL. Instead, they are looking for a partner for AOL.
The WSJ indicated that Microsoft is pushing "to hammer out final details of a partnership that could boost the online ad reach of both [AOL and MSN] and pose a challenge to Google Inc. and Yahoo Inc." Apparently Microsoft was willing to guarantee Time Warner a minimum amount of revenue, which--to date--Google has been unwilling to do.
"Search-ads are the biggest segment of the online advertising market. The search-ad systems such as those run by Google and Yahoo display ads when users type key words in queries . . . Advertisers bid in an auction system to have their ads displayed alongside specific phrases, such as 'digital camera.' Advertisers like the system because they pay only when a consumer clicks on an ad." (WSJ)
The WSJ suggests that a MSN/AOL partnership could reach nearly 140 million Americans each month compared to 122 million users of Yahoo and 86 million for Google. More importantly, BWO points out that MSN could help to change the demographics of AOL's users. "AOL's online advertising business isn't as profitable as that of Yahoo or Google. That's because advertisers believe that Yahoo and Google command a higher percentage of broadband users, as well as a higher percentage of daytime users who surf the Web at work. Rival AOL still is viewed as a medium for dial-up customers who log in at night. By combining AOL with MSN, Time Warner could attract more daytime and broadband users, boosting its profitability." (BWO)
Scott Kessler, a stock analyst, was quoted in the WSJ saying, "'Suddenly the competitive landscape looks a lot less favorable to Google for next year at this time compared to last year at this time. . . It would be a mounting threat to Yahoo' as well."
Word is that Google is still in there pitching to partner with AOL.
A final deal is expected to be announced any day now.
Who will it be . . . Microsoft or Google? Stay tuned.