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Stephen Logan

AOL Consider Yahoo Merger

6th Dec 2010 News, Industry News 2 minutes to read

AOL are considering a merger with Yahoo as former Internet giants look to recapture their identity and secure a long-term future.

Like a great restoration project, two ruinous online businesses are looking for some major structural repairs in order to recapture some of their individual former glories in partnership. In the case of AOL and Yahoo, the proposed disbanding of the former and ultimate merger between the two great pillars of the Internet in the 1990’s suggest a reluctant acceptance of their mutual change in direction and lack of competitive edge [see: Exclusive – AOL mulls breakup, then merger with Yahoo | Reuters].

Under the stewardship of Carol Bartz, Yahoo has undergone a complete overhaul. From a search engine with a sideline in content, to being a content churning machine with Microsoft-powered search attached, it’s almost unrecognisable [see: Yahoo Increasingly Looking to Content to Fill Search Void].

AOL has faced similar struggles. Its search market share has plunged in recent years, whilst its core dial-up subscription service has also faltered. So, like Yahoo, they have diversified into a world of content production and other investments. This has seen them snaffle a number of high profile blogs and news sites, including the slightly controversial acquisition of TechCrunch.

Thanks to display ads, high content levels and various investments (notably a 40% share in Alibaba by Yahoo) both companies maintain decent cash flow. But it’s their individual (or collective) long-term future that many would question. AOL is still reeling from its dark, damaging days with Time Warner whilst Yahoo has still to adjust to life after search. A merger therefore would avoid them treading on each other’s toes and maintain some form of collective goal – dominate online content.

With hyper-local news being targeted by AOL as a way of attacking a notoriously challenging niche, there are ideas being implemented that are sustainable and possibly valuable. But evidently their future is away from search and in creating, distributing and selling content. The issue remains the same though – Google.

If anybody can quash a spirited uprising, it’s the search engine that commands 90% of the UK search market. Google are investing heavily in local search and news, as well as just about everything else, so an AOL-Yahoo coalition would have to work hard and fast to rebuild their collective reputations worldwide (and not just in the US where they have maintained decent popularity).

They don’t have the buying power of Google, as evidenced by Yahoo’s recent failure to match their bid for Groupon – short by almost $3 billion in fact [see: Google Keep Investing – This Time It’s Groupon]. However, if they can focus on creating quality content that resonates with an online audience then who knows – perhaps there might well be a future for both ailing companies.

Perhaps my doom mongering was misplaced in the rather emotive and loaded questioning of whether Yahoo had already jumped the shark, earlier this year. Both businesses may have hit rock bottom in the reputational stakes, but theoretically this means that the only way is up from here.

So perhaps there is still a future for both AOL and Yahoo online, could they even become major powerhouses once again? It’ll certainly be interesting to see what the fallout of this proposed merger would be should it ever happen.  Are they both plugging themselves into life support or could it be something far more meaningful? As always, only time will tell – one to watch in the New Year no doubt.

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