Buy AOL, Get Time Warner Free?

Psst, Fool. Yeah, you. Come over here. I gots something I wants to show ya. I have a special deal working here and I've been saving it just for you. Why you? I likes ya, that's why.

Limited time only, pick up shares of the world's leading Internet service provider and I'll throw in an entertainment giant for free.

Too good to be true you say? You're entitled. But check this out. Back in December, a few weeks before the America Online (NYSE: AOL) deal with Time Warner (NYSE: TWX) was announced, AOL peaked at $95 13/16. Today, the stock closed at $54 13/16. Assuming the deal closes, we'll be just shy of 4 billion shares outstanding. Multiply that pro forma share count by the amount AOL has shed and you'll see paper losses almost at the $163.5 billion price tag that was originally placed on Time Warner in the all-stock stock deal.

So buy AOL, get Time Warner for free. Right? Wrong. I hope my ball and shell game didn't fool you. It's not right to throw in pro forma shares when AOL was simply AOL back in December. But even if I roll up my sleeves and remove the mirrors we're still talking some big numbers here. On its own, America Online has given up $115 billion in market cap from peak to now.

We can't just fault the recent tech stock malaise on this. When AOL peaked on December 13 the Nasdaq Composite (which AOL doesn't belong to anymore naturally, but it's a great gauge) closed at 3658.17. The market is higher today. The "You've Got Mail" gang is not.

What to blame? You can't fault fiscal performance because AOL has delivered on the earnings front. The market applauds while clicking in sale orders with its toes. It's just another contradiction. No, wait, it's not a contradiction.

It's hypocrisy. It's saying one thing and doing another. That's been quite the contagious malady lately. If you sneeze some of that on me, don't bother to pretend you care. The afflicted can sniff out its own kind miles and modems away.

But, since I've taken a shine to you, I'll let you in on a few two-faced gems in the New Economy realm:

Myth #1: Online retailers are no longer couponing aggressively

Sure, and the tooth fairy and Easter Bunny can peck out featherweight press releases too. If you remember my December United We Strand recap (of course you don't, but you can always click the link and tell me you did), I posed the possibility that e-community might stab e-commerce in the back. Sites like BargainFlix.com and CoolSavings.com have been consolidating coupon codes and Internet offers submitted by users to spread the wealth.

As a consumer, how could one pass up CDNow (Nasdaq: CDNW) when it was offering $10 off $15 orders back in February. The site was even more popular than Amazon.com (Nasdaq: AMZN) at that point. But the cash-strapped prerecorded music powerhouse lost $28.5 million on the quarter so it opted for a "less is more" strategy in April. No more discount offers. Traffic plummeted. Needless to say, with the company on the auction block this month, the emphasis on winning back eyeballs and eardrums is back. Need a CDNow coupon? If you're on AOL, check your log-off message perhaps. DealCatcher has three.

Is it irony if we knew it would happen all along? E-commerce can't just shut down this huge metallic coupon lactating machine we have come to savor. Weaning us off this discounted diet is not going to happen overnight.

Yet even if we weren't addicted -- which we are, of course, but let's say we weren't -- it would be a difficult habit to kick for the Internet retailers themselves. In the e-tail world just about everybody has to mark down with the Joneses. It's not a closely guarded industry like, let's say, petroleum. OPEC often struggles to regulate oil production to maintain crude prices, though it ultimately succeeds. But consider the airline carriers. The few still on the runway can't afford a united front. The moment demand dries up the rate cuts fly at one company and they all flinch. So if the mighty titanium wings can't land softly, what hope does the open-wide wingspan of e-commerce have to keep all of its players locked in on full margin pricing? Houston.com, we have a problem.

Two weeks ago, DealCatcher founder Daniel Baxter wrote me to point out how Internet couponing has only intensified since the holiday rush. He should know. Yet, it's not what analysts were expecting. With weaker players buckling under and consolidation working its acquisitive magic on others, this was supposed to be a glorious time for e-tail survivors to fatten their margins.

Nope. The last bus to Utopia left without us.

And while we're at it, soaking in the rain by the bus stop bench, am I the only one who isn't convinced by the notion that...

Myth #2: The e-commerce shakeout will be severe

Sure, the field crew is laying the tarp over IPOs who are now experiencing an investor apathy delay. But while stock market deals are being postponed, venture capital firms are still loading up on unspent greenbacks. Won't that money go even further now? Won't that money fund even more upstarts now? Won't these upstarts be even stronger this time because now they need to show a viable business plan that will produce sooner rather than later.

I can still get excited over a company like Amazon.com (Nasdaq: AMZN). For starters, if you head out to DealCatcher you will find plenty of Amazon item deals and a few third-party discount offers -- but no immediate coupon code offers. They've been e-mailing a few coupons to targeted customers lately but it is not the universal price-off nicotina so many other retailers can't break away from.

I think way too many mediocre retailers confused the storefront with the brand. In the real world, product coupons try to win over loyalty. Mark down that first purchase to show discernible differences and they will flock back to your wares. But in the online world, the couponing only creates dependency on the discount process itself. Most of my online shopping usually starts with a quick trek to a price comparison shopping site like My Simon and then heading out to coupon sites like DealCatcher to see if I can better the best price.

The markdown won the sale but not the customer. Maybe that is why the clipped coupons in Sunday circular life refer to the product and rarely to the venue in which they are ultimately purchased. For way too many retailers, the brand is actually the negative gross margin fulfillment price -- if the shopper is shrewd enough.

Can asset-poor companies continue to treat their balance sheets this way? Apparently so. There is still great value in the online mindspace and I've got the lawsuits to prove it. Last month GO.com (NYSE: GO) agreed to pay $21.5 million to settle a lawsuit by GoTo.com (Nasdaq: GOTO). It was all over a green traffic light logo which GO.com was using. GoTo had the right of way. But GO has since ditched the logo and it didn't do a lot of good because the company was bleeding red under the green light signal anyway. So why settle? If green circles are so valuable, should I be hoarding away green Tiddly Winks and lime-flavored Lifesavers as if they were tulip bulbs? Does this mean that Monopoly maker Hasbro (NYSE: HAS) is going to sue the company next -- demanding $200 every time someone passes GO?

There is value in the intangible. That value is so easily misconstrued in the near term. A lot of things just don't make sense in the near term. In the near term. In the very near term. Is the Rule Breaker a bad portfolio because it's down nearly 17% this year? Is Ken Griffey, Jr. a bad baseball player because he's batting .215 this year? The answer to both of those questions lie in the long-term stats -- and therein lies the optimism for tomorrow's recovery.

Tarps get rolled back up. Players take to the fields of green again. And, yes, we all know that there is money to be made when the traffic light turns green.