Behemoth
Battleground – AOL being sought by Google and Microsoft?
By Jim Hedger, StepForth News Editor, StepForth Placement Inc.
September 19, 2005
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Google and Microsoft appear to want many of the same things.
Two years ago, when Microsoft saw that Google was threatening to dominate
the Internet in much the same way Microsoft dominated the desktop, Microsoft
began to move mountains to get into the search field. Since MSN released
its own search tool earlier this year, the two firms have viewed the other
as its chief rival and the competition between them has been tremendous.
This summer, Google and Microsoft have been waging multiple battles across
several fields from the courting of business in China to the courtrooms
of King County. This week, a new battleground may be opening, this time
in the Manhattan offices of Time Warner, the owner of AOL.
A September 15 New York Post article fueled speculation that Microsoft
might be interested in acquiring a part of AOL and integrating it into MSN
search. Today, rumours are circulating that Google is working to either
block or outspend Microsoft’s bid. Compared with the other battles
being waged between the two firms, the fight to own AOL could be a turning
point for both companies.
It has been nearly six years since AOL purchased the Time Warner media
empire for billions worth of stock certificates and just over five years
since the bottom fell out of those stocks. Since that time, AOL has been
the poor cousin in what had become the AOL Time Warner chain, performing
so badly that the board of directors voted last year to remove the letters
AOL from the corporate name.
In many ways, AOL has been synonymous with “second ran” for
much of its existence. Its proprietary web browser, Netscape was all but
destroyed by Microsoft almost ten years ago. Its user base, while still
enormous, has been shrinking for several years. As an Internet Service Provider,
most long-term web users liken AOL to training wheels for new-users. AOL
has had few major successes in the past five years. The most obvious is
the development of Firefox by the Mozilla Foundation, which AOL fostered
but spun off two years ago. Another success, the reach of AOL’s advertising
arm, is seen as the real prize being fought over by Microsoft and Google.
AOL provides Internet services to over 27-million people around the world.
One of those services is a search-service and like most modern search services,
AOL’s includes sponsored or paid advertising. Google provides search
results and sponsored ads to AOL in an arrangement that supports about 12%
of Google’s annual revenues. Google has long benefited from their
partnership with AOL and will likely do whatever it takes to keep it.
Microsoft is very worried about the growth of Google and is determined
to do whatever it can to emulate its success while hindering, slowing or
stopping Google’s progress in key areas. A purchase of AOL would provide
Microsoft’s MSN search division with two very powerful assets, the
first being their own proprietary contextual advertising network, the second
being a partnership of some sort with Time Warner (the world’s largest
media conglomerate). The added bonus is the destabilizing effect of losing
AOL on Google’s bottom line.
MSN needs to bulk up on its users if it is to be successful in paid-search.
Gaining access to 27-million AOL members, along with millions of ICQ subscribers,
CompuServe clients and AIM users, is a good way to very quickly increase
an auditable user-base to serve paid-advertising to. Being able to tell
potential advertisers that their ads might be viewed in the online editions
of some of the world’s most popular print-magazines is a good way
to boost advertising sales. Eating your competition’s lunch in the
process is a priceless component to the deal that has obvious value in the
long run.
In what might appear to be one of the highest stakes games of Monopoly
ever played, AOL represents one of the few remaining high-power areas in
which deals can be made, at least in the current configuration of the search
game-board. Both Google and Microsoft would both see great benefits from
an acquisition of AOL, including the virtual hobbling of the other.
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