"I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I --
I took the one less traveled by,
And that has made all the difference."
-- From "The Road Not Taken," by Robert Frost, 1920
I think AOL
In 1998, when AOL bought Israel-based instant messenger pioneer Mirabilis and its ICQ service for $407 million, it was an early sign of AOL's demise. The company was forgetting what the "A" in AOL stands for (America, in case you forgot), losing its identity in a quick, worrisome desire to sprawl out in uncontrolled growth. Given AOL's own AIM messenger service, which now is fully compatible with the ICQ network, the company didn't even have a technical reason to stretch for the Israeli firm.
The "OL" (On Line) lost its significance a couple of years later, when AOL bought Time Warner
AOL is reversing course at long last. A Russian investment group that also holds a serious stake in Facebook has taken ICQ off AOL's hands for the princely sum of $187.5 million -- less than half of what AOL paid for it 12 years ago. That's a pretty sorry return on the investment. The buy makes sense for Digital Sky Technologies, since ICQ is strong in markets like Israel, Germany, and Russia, where DST does most of its business. For AOL, ICQ was never more than a misdirected ambition that couldn't pan out.
So AOL is stripping back to the bare essentials under CEO Tim Armstrong's leadership, attempting to kickstart its online heart back into a growth rhythm. But consider this: AOL holds $2.2 billion of goodwill on its balance sheet -- a sum that should get a small writedown, now that ICQ is gone. I can't think of a single AOL acquisition that worked out well, from Nullsoft's media players and file-sharing tools to Netscape's ill-fated Web browser, and many more. That goodwill balance would be much closer to reality if reduced to a big, fat zero. And what does that mean for AOL's $2.6 billion market cap? Yeah, exactly.
Technology buyouts are a dangerous game -- just ask eBay
A reformed AOL, with laserlike focus on being an American portal for the common American consumer, could still be valuable. But before that happens, the company will hit rock bottom very hard -- perhaps several times over. Call me back when AOL is a micro-cap, gasping for air, but with a business plan that makes sense. That does not describe the company today.
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Fool contributor Anders Bylund owns shares in Netflix and Google, but he holds no other position in any of the companies discussed here. It's National Poetry Month, so say hello to poet laureate Robert Frost. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.