Catching up: Part 2 – “AOL Going Once…”
By Charlene Li
I wrote about the MSN-AOL rumors a few weeks ago and haven’t had a chance to comment on the Google-Comcast-AOL rumors. But I had to laugh when I got an alert that Yahoo-AOL rumors were on the street as well. I was going to handicap the various combinations for success, but I’m pretty convinced that a deal – if there is one – will be brokered based on economic terms, not on what ultimately makes the most sense in the industry. So instead, let’s take a look at AOL’s various assets and what they mean for each of the contenders.
Search distribution and revenues: This is the obvious one. AOL accounts for about 12% of Google’s revenues or about $380 million annually (and rising) which all of the search players would love to have. Regardless of anything else that happens, AOL is clearly positioning to get the best possible deal for search. The problem is that consumer search and search advertising is going to be heading into a new era in the next year – personalized search requires a great deal more integration while search marketing will tap into user profiles to target ads based on demographics and behaviors. In such a case, simply swapping in and out a search engine won’t be enough. Given AOL’s reliance on display advertising, MSN’s adCenter approach – which integrates traditional brand targeting features – seems to make a great deal more sense in the long run. But I’m pretty sure that Yahoo! has something similar in the works while Google is just this year getting entering the display ad arena.
Brand advertisers: As I mentioned above, Google is eager to enter the display ad space – primarily because it hasn’t been able to tap into all of the dollars represented by both the online AND offline brand marketing budgets. A deal with AOL would give them instant access to advertiser relationships they would otherwise have to painfully build from scratch. Of course, MSN and Yahoo! would love to be able to expand the inventory and reach for their advertisers, but in most cases, they probably are already doing business with AOL advertisers.
Audience of registered users: With almost 50 million unique users coming in every month to AOL.com, it’s a powerhouse. A key benefit to someone like Google is the registered relationship and the ability to understand what users are doing outside of search. Just as a point of comparison, Google’s Gmail service had only 3.4 million unique users in the US in September, according to Nielsen//NetRatings. The value of the AOL portal is not as strong to MSN, and even less so for Yahoo! because they already have a large base of registered users and have been mining user data for years.
As I’ve said before, I still believe a MSN-AOL hook-up would make the most sense and is most likely. The companies are similar in size, culture (and bureaucracy). They both need a much-needed boost in morale and energy that an acquisition could bring. And MSN has the financial wherewithal to make the deal. This deal makes sense on paper, but primarily for back office operations – combining display ad sales, using MSN’s new search technology and bidding infrastructure, and a joining of forces of the #3 and #4 players to make a strong contender versus Yahoo! and Google.
Google is unlikely to have the interest and skill to make a competitive bid (John Battelle has more about Google’s appetite (or lack thereof) to compete for AOL). Meanwhile, Yahoo!’s bid is supposedly fraught with anti-trust implications, but I think they can make the case that they would still face stiff competition from both Google and Microsoft.
But the most interesting development is the quietest – Comcast has long had ambitions to be more than just a distribution pipe. A leader in video on demand (VOD), Comcast could build an interesting cross-channel property between AOL’s online audience and its cable distribution. The fact that it’s making the bid in conjunction with Google also has some interesting implications. I’ve written in the past that Google’s über ad network could make the jump into video ads – and hence, into cable television. Couple this with Google’s video search and you’ve got the ability to not only search across a vast library of video but also deliver it through multiple channels along with contextually placed ads. So even if Google/Comcast don’t end up with AOL, it is the possibility that the two will cooperate at all to create a brave new world that’s most interesting.