Friday, October 14, 2005

AOL Specula-thon

[Disclaimer: I am a TWX shareholder and Yahoo! employee/shareholder. I am not a financial expert, nor do I play one on TV.]

There's a lot of OMG WTF around the heavy breathing between Microsoft and Google and Comcast (and, now, Yahoo!) with the hot honey of the moment, AOL.

So I thought I should do a round-up of all the speculation going around why X wants to buy some piece of AOL.

Why Google wants AOL
  • Defend against Microsoft-AOL tie-up that would vault them into top spot in users/month, and more importantly take away the 11% of Google ad revenue that comes from AOL. (Comcast, Google May Acquire Part of AOL, AP/Yahoo News, Oct 13)
  • Defend Google Talk, extend IM and VOIP market to AIM users; grow good-quality search traffic (Poker Time: AOL is the Flop, John Battelle's Searchblog, Oct 13)
Why Comcast wants AOL
  • More broadband customers; access to more content; access to open distribution network (Poker Time: AOL is the Flop, John Battelle's Searchblog, Oct 13)

Why Microsoft wants AOL
  • See "Why Google wants AOL" above.
Why Yahoo! wants AOL
  • To extend its lead in market share from 99m users/month to 130m users/month, and "to cripple Google" (Rob Enderle) (Yahoo! Said to Join AOL Suitors, AP/Yahoo! News, 10/14)
When I bought this stock at under $12 three years ago, I was thinking: No way could a mediagiant like Time Warner be valued as low as $12. Come on! I mean, it's just AOL muddying the numbers. At the very worst, people will wake up and just spin off this AOL deadweight (albeit a valuable one with 21 million paying subscribers) and clear up the valuation mess.

Well, they've made the "deadweight" more valuable by diversifying from subscriptions and banner ads, to subscriptions and banner ads and text ads, in a rapidly growing online ad market. Now, AOL is really starting to leverage its strength as a distribution channel for all its valuable content (and ads!) by taking down the walled garden. On top of that, they're achieving a semblance of a spin-off (and clearer valuation differentiation from the media business) without losing control of the distribution channel. Give that Richard Parsons a raise.

Well, who wins? I don't know. All I know is this OMG WTF leaves me (and other TWX shareholders) LMAO all the way to the bank. OK, I'd be laughing if I'd bought more TWX. ;-)