Internet Outsider: Googols of Cooks in AOL Kitchen

All right, yes, this is all very exciting, the parade of AOL suitors surrounding Time Warner's headquarters. Microsoft reportedly wanting to set up an MSN-AOL joint venture. Google and Comcast reportedly wanting to cut AOL in half (dial up and web) and invest $5 billion in the web part. Time Warner wanting to maintain voting control, but spin out its former "crown jewel" (as former Time Warner CEO Levin briefly called AOL a few years back, to appease the AOL egos mortified by merging with a dumpy old media company), so as to "validate" the AOL turnaround and pump some air into Time Warner's own deflated stock price.

And as discussed here, many of these ideas have merit.

Google would benefit by:

Owning a piece of its biggest customer--and, thus, blocking Microsoft from owning (and stealing) same;
Gaining direct access to AOL's core user base of net Luddites (a complement to the core Google user base of techies);
Partnering with the leader in online messaging--an area in which Google is still weak; and
Obtaining access to vast troves of offline content, another area in which Google is weak.

Comcast would benefit by:

Owning a piece of a major Internet business, one that could help it navigate the major transformation in the TV business now getting underway;
Owning a piece of mouth-watering online advertising and commerce revenue.
Procuring a high-quality (and popular) portal to slap on its broadband online service, instead of reinventing the wheel with an inferior version of its own.

Microsoft would benefit by:

Gaining significant scale and market share, thus making itself a stronger No. 3 in the search, portal, and messaging wars.
Complementing its strength internationally with one of the strongest players in the U.S.
Saving pots of money eliminating technology duplication, reconciling salesforces, striking content deals, etc.; and
Allowing Microsoft senior management to stay focused on the company's core business.

Time Warner would (presumably) benefit by:

Highlighting the value of the AOL asset and, ideally, giving it a better chance to thrive.

So what's the problem? Well, it's not a problem so much as a big risk factor (regardless of who wins). To wit, the proposed deals--at least as described in the WSJ and other publications--all involve inserting boatloads of cooks in the AOL kitchen, which, right now, is the last thing the company needs.

For example, have you heard what Comcast and Google reportedly want to do? Cut AOL in half (web and dial-up), invest $5 billion in the web piece, arrange some deal whereby the cast-off dial-up piece licenses content from the web piece (while at the same time providing the web piece with almost all of its traffic), make sure Time Warner doesn't screw up the dial-up piece (can't lose all that traffic) and then manage the web business along with the third and fourth owners, Time Warner and the public (assuming Time Warner spins AOL off) while balancing the competing interests of all four, and all the while competing with Microsoft and Yahoo. This is a recipe for disaster. Time Warner has had enough trouble managing AOL by itself. Imagine what will happen with all the Google and Comcast egos in the room.

And then there's the reported Microsoft proposal: a "joint venture." One way of describing a "joint venture" is "an entity in which neither party needs or wants to take responsibility for success or failure and in which, therefore, the latter is probably assured." What AOL needs now is strong vision, execution, and commitment. A joint venture is anathema to all three.

So while we Time Warner shareholders who have been hanging on for years in the vain hope that the dog might once again learn to hunt can now dream about a frantic bidding war for AOL, we would probably do ourselves a favor by selling on the news. Because if either of these reported deals goes through as reported, we're probably screwed.

Comments

You'd think that the dial-up business would be attractive to Comcast since it would be a major opportunity to market it's high speed services directly to those users. I'm sure Verizon and the other major DSL players are watching that aspect of the rumors with great interest.

Posted by: GTKdoug | October 13, 2005 at 10:57 AM

Posted by: GTKdoug | October 13, 2005 at 10:58 AM