According to WSJ reporters Angwin, Delaney, and Grant, Google and Comcast have joined Microsoft at the AOL waltz. Not hard to see why Google would want a piece: no better way to protect 10% of your revenue than to own a chunk of the customer providing it. Also not hard to see why Comcast is slobbering: what better way to corral some of that juicy online advertising and ecommerce revenue than to own your own (popular) portal?
So suddenly the business that everyone wrote off for dead a short while ago is the most popular girl at the dance.
Here's what's strange, though: the WSJ reports that Google and Comcast only want to invest in AOL's web business, not the dial-up part. Strategically, this makes sense: buy the growth, not the decay. Practically, however, it's hard to see how the two businesses can be separated. AOL's dial-up business provides most of the traffic to the portal, so it would seem a mistake not to own it, too. Also, the death of AOL's dial-up business has been exaggerated: even in its withering state, the business features more than 20 million subs and generates about $8 billion in revenue and $1.5 billion in EBITDA per year. Who wouldn't want to own a piece of that?
In any case, look for Microsoft to either suddenly get more interested in AOL--or, if Google/Comcast win, to transfer its affections to Yahoo!. Whoever gets in bed with AOL is going to be a lot stronger in the morning.
I just don't believe this will ever happen. Investing in AOL is antithetical to Google's DNA.
Posted by: W. Zimmerman | October 12, 2005 at 08:50 PM
Even a minority investment? Google's core user base is tech savvy, while AOL's is Luddite, so good crossover there. Also, AOL's great strength is communications, where Google is still very weak. So, strategically, I think it makes sense, although agreed that it would be a tough one for NIH inner circle to swallow.
Posted by: Henry Blodget | October 12, 2005 at 09:03 PM
You wrote "AOL's dial-up business provides most of the traffic to the portal, so it would seem a mistake not to own it."
Just a wild thought: what if the dial-up half requires a seperate valuation because Google has no interest in it but Comcast could benefit mightily from upgrading the customers to cable broadband.
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