Looks like the buyout chatter is once again making the rounds.
TechCrunch is reporting that combination talks between Yahoo!
It wouldn't be a complete merger. AOL would unload its fading dial-up business to the few remaining gluttons for landline-tethered punishments, like EarthLink
The market hasn't wrapped its head around a possible pairing, because everything is just hearsay at the moment. However, I may as well do my part to nip this in the bud and point out the many reasons why this hookup would be a bad thing.
1. Junk + junk = more junk
The best mergers involve companies that come together like interlocking puzzle pieces. Acquisitions are about filling voids, not multiplying them. Yet investors should expect the latter if Yahoo! and AOL team up.
Both companies have similar strengths. They serve up a ton of page views. They attract people looking for free email accounts and IM access. Unfortunately, these areas are tricky to monetize. When's the last time that you clicked on an ad and became a quality lead for a sponsor while you were checking your email?
Yahoo!, AOL, and Microsoft
2. The deal would be only a baby step in search
Paid search is where the money's at. Just ask Google
Yahoo! and AOL do funnel as much traffic as they can to their searches. AOL even leans on Google to "enhance" its search results. How big would this deal be? Quite small, sadly.
| Site |
August 2008 |
July 2008 |
|---|---|---|
|
|
63.0% |
61.9% |
|
Yahoo! |
19.6% |
20.5% |
|
Microsoft |
8.3% |
8.9% |
|
Ask Network |
4.8% |
4.5% |
|
AOL |
4.3% |
4.2% |
Source: comScore.
If the country's second- and-fifth largest players in search were to combine, AOLhoo would have commanded just 23.9% of August's search queries. That's just a little more than a third of Google's ever-thickening slice.
3. There are bigger fish in the sea
Why AOL? If Yahoo! is smart -- and paid search is the ultimate objective -- why overpay for AOL when Ask.com parent IAC
Even a traffic-rich Web company such as Marchex
4. The values are out of whack
These are desperate times, especially when Yahoo! is under pressure to show its shareowners that it's not simply standing still after rebuffing Microsoft's buyout overtures.
This makes it the worst possible time to act just for the sake of acting. Time Warner would love to unload AOL, but it's not the company with an egg timer in the boardroom. If Yahoo! can't get a favorable deal done, then the company owes it to shareholders to stay put, even if doing so means that most of the executives will be gone by next summer's annual shareowner meeting.
5. Yahoo!'s best course remains to outsource its paid-search space to Google
Handing over the keys to Google for paid-search monetization remains Yahoo!'s best option. Yahoo! expects that deal to bring in as much as $800 million in incremental annual revenue and generate as much as $450 million in additional operating cash flow for Yahoo!
That deal isn't permanent, either. If Yahoo! ever feels as if it can out-Google Google, it's free to take back the keys and drive itself home. Regulators may not let the Google deal happen, but you don't strike a bad deal for a fading player like AOL until you know that the Google road is a dead end.
Rolling with Google also gives Microsoft one more reason to reopen negotiations to acquire Yahoo!, a slightly more logical pairing that has no chance of happening if Yahoo! fattens itself with AOL.
So don't do it, Yahoo! Stay away, AOL. Compounded irrelevance is a marriage of convenience that never lasts.
Some other recent dot-com dealings:
