On the verge of apparently doing a disastrous sales-force combo with MSN, Time Warner has reportedly pulled a positive AOL deal out of the hat. According to the WSJ, Time Warner’s new partner, Google, will fork over $1 billion for 5% of AOL and remain AOL’s search partner, and AOL will get free links to its content embedded deep within Google’s pages.
On its face, this seems a good deal for all three companies–and a bad one for Microsoft.
Time Warner gets another $1 billion in cash to pay down more of its debt, gets to crow that AOL is worth $20 billion (which is apparently 2x the value the Street places on it–although this may just be media analysts overestimating the value of Time Warner’s other properties), and gets to flip shareholder gadfly Carl Icahn the bird.
AOL gets to avoid switching search horses and, thus, risking the possible disruption and poor performance that might have been expected from an untested system from Microsoft. More importantly, it presumably gets boatloads of much-needed traffic to its portal from Google.
Google, meanwhile, gets to keep AOL as a search customer (approx. $400 million in revenue and $50 million in gross profit) in exchange for some chump change from its cash hoard. It keeps its fingers deep within the AOL portal pie, which is positive because, despite its indignant denials to the contrary, it’s headed straight for portal-dom. It gets to keep its brand in front of AOL’s demographic (Internet newbies and teenage girls), which has little overlap with its own demographic (web-savvy professionals). And, perhaps most importantly, it gets to own a piece of a company that is strong where it (Google) is weak: communications. Properly exploited, AOL’s IM and mail products could improve the outlook for Talk, Gmail, etc.
The deal won’t solve everything: If AOL is to survive, it still needs to figure out a way to toss of the straitjacket of Time Warner’s other divisions and cut some broadband, DSL, and VOIP deals in a hurry. But it’s a step in the right direction.
And MSN, meanwhile, must now be feeling even more lonely and forlorn than before. Time to cozy up to Yahoo.