Today, Time Warner's board is meeting to discuss which of its two suitors it prefers for the stake of AOL that Time Warner wants to sell off. The rumor mill says that AOL will be reconstituted as a 50/50-ish partnership with either Microsoft or Google/Comcast. The outcome will be interesting for the press and the players. It may not make much difference to AOL's customers. But money will change hands and more ink will be spilled dissecting the final arrangement. The best coverage to date has come from David Vise at the Washington Post. In particular, take a look at the great graphic the Washington Post ran last Sunday, summarizing the strengths and weaknesses of AOL's suitors.
Why is AOL a hot property?
I believe that there are three important assets that AOL has. All of them are, of course, completely ephemeral. If customers continue to abandon AOL at the current rate of two million subscriber defections per year, there won't be much left in which to invest. On the other hand, the assets that are of interest to Microsoft and Google are:
The Tween/Teen Market. AOL is still the preferred Instant Messaging platform for many tweens/teens around the world. Between AOL Instant Messenger and ICQ (the original IM purchased by AOL), there are close to 100 million people using AOL-flavors of IM—most of them under the age of 20. This is a market that Google and Microsoft both covet. Paying $20 per AOL IM user is a pretty reasonable price, considering the purchasing power and therefore ad revenues this market attracts.
The AOL Search Business. If Microsoft were to win the battle over AOL, AOL would no doubt switch its search engine from Google to Microsoft. AOL's search revenues account for 11 percent of Google's current revenues, or close to $600 million/year.
Music and Video. This may be the biggest prize for Google. Google has alienated rights holders—both authors and publishers are suing Google over its violation of fair use in the Google Library program. Google is experimenting with video content, but hasn't gotten very far. Google also appears to be behind in music, compared to archrival Microsoft, and Google may be reluctant to take on the entire media industry. AOL, on the other hand, has a very strong streaming music business (MusicNet) with its very successful AOL Music LIVE! and AOL Music Sessions events, a strong partnership with Apple's iTunes, and the respect of music and video rights holders.
Of course, it helps that parent Time Warner is a major media property, and that AOL has traditionally been able to partner successfully with Disney, Sony, and other entertainment companies. Partnering with AOL would give Google a huge leg up in cracking the entertainment business. Comcast is interested for two reasons: CEO Brian Roberts wants a piece of the Google advertising machine, and he wants access to Google's search to make his programming much easier for us all to find. Google needs a larger war chest to be able to meet or beat Microsoft's $5 billion+ offer for a stake in AOL. Comcast is happy to comply. Once a Microsoft bedfellow, Comcast has since parted company from Microsoft and is apparently happy to be in the other camp.
Think teens, music and video and you can see how much is at stake in this tug of war!
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