Google-AOL Not Just Defensive

Lots of commentary over the weekend suggesting that Google's play for AOL was just a defensive move designed to keep its AOL revenue, keep AOL out of the hands of Microsoft, and keep Microsoft irrelevant in search.  Although the deal will almost certainly accomplish all of these (MSN will now be alone in a distant third), there are plenty of offensive reasons for Google to do the deal as well.

I listed a few in the previous post (complementary user-bases, access to AOL's strong communications platform, and access to AOL's portal expertise), and Battelle and others added a few more over the weekend.  Battelle's thought?  Google is just doing what AOL used to do in the good old days: invest in a company and, by means of the investment, make the company much more valuable--and then reap a huge windfall in a subsequent liquidity event.  Back in the late 1990s, AOL did this with dozens of dotcoms, and, as Battelle points out, Google has clearly been infusing companies with value for several years now.

The problem with the theory in this case is that Google's $1 billion won't save AOL--although the incremental traffic it will drive to the portal via preferred links within Google should be a big help.  Unless/until AOL reverses its traffic, revenue, and operating income declines, the idea that it's worth as much as, say, Yahoo!, by virtue of a bigger revenue base isn't very convincing.

I still think AOL can be saved.  I also think it's going to be hard to do it with the company still in the arms of Time Warner.  But a deep partnership with Google can only help--and certainly much more so than a half-assed JV with Microsoft.

Comments

[Tom]

For AOL there's obviously a benefit in partnering with Google, but I think that AOL could be something of a trojan horse for Google. Google's core credibility is based on the fact that it is trusted to give the best search results. Giving 'preferred treatment' to AOL's ads will erode this trust. Especially given that sentiment about Google is slowly evolving to the kind of resistance that Microsoft encountered after it became too big. Nobody likes a company that dominates. Especially not a company that knows so much about our online activities, and that is making more and more inroads into our privacy.

[Network]

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