AOL may be having a tough time keeping its paying subscribers, but it's apparently finding no trouble in attracting potential suitors.
Reuters reports that Time Warner's (NYSE: TWX ) online subsidiary is in the process of evaluating both Yahoo! (Nasdaq: YHOO ) and Microsoft (Nasdaq: MSFT ) as promising sugar daddies. With dreams of Microhoo disintegrating into a feud worthy of the Hatfields and McCoys, AOL smells an opportunity to latch on to either desperate party.
Why America Online? Well, even though paying subscriber rolls for its access service peaked six years ago, AOL's growing suite of free content keeps drawing visitors. Even in the hip Apple (Nasdaq: AAPL ) world, the AIM online chat platform and AOL Radio are two of the most downloaded free applications for iPhone users. Between its free email and content portals, AOL draws enough of a crowd to be one of the country's 10 most visited websites, according to traffic tracker Alexa.com.
Unfortunately for AOL, most of that traffic is the penny-pinching kind. That same problem finds every Web company not named Google (Nasdaq: GOOG ) relying more on display advertising to monetize those pages than more lucrative paid-search leads. That would normally make AOL an unattractive conquest, but Yahoo! and Microsoft are seeing life through beer goggles these days.
What's in it for Microsoft? MSN.com is growing but still unprofitable. Scooping up AOL would help Microsoft's fledgling online advertising business by providing it with a ton of additional pages on which to sell ads. As a more strategic benefit, Google has a small stake in AOL, and it's currently serving AOL's paid search needs. If Microsoft can't take down Google, it may as well eye sites like AOL and News Corp.'s (NYSE: NWS ) MySpace, which outsource their ad space to Google. That might give Mr. Softy a better shot at wrestling away that gravy train from Big G when the contracts are up for renewal.
What's in it for Yahoo!? Absorbing AOL would be more of the same for the Yahooligans, but it may buy Yahoo! some time. No one knows how next month's shareholder meeting will turn out, but snapping up America Online at a fair price would give Yahoo! a fresh growth catalyst to highlight.
Now that Time Warner is open to breaking up its conglomerate -- just check out last year's Time Warner Cable (NYSE: TWC ) spinoff -- it may not be as greedy about AOL when Google overpaid in forking over $1 billion for its 5% stake three years ago.
AOL may not be much of a looker, but that's all relative these days. For better or worse, AOL is the new belle of the buyout ball.
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