Yahoo is continuing its marathon merger discussions with AOL, sources close to the negotiations have whispered to us, and a deal could happen as early as this month. Is this just a rehash of the reported discussions in February and then again in April?
Yes and no. It’s clear that AOL’s parent company, Time Warner, wants this deal more than ever. What isn’t clear is whether AOL’s assets will fix any of Yahoo’s problems.
The deal structure that is currently being discussed is Yahoo’s acquisition of AOL (content, services and advertising), minus their subscription dial up business. That plus a couple of billion dollars in cash from Time Warner gets them approximately a third of the combined entity. Time Warner’s AOL headache is gone, and they have a stake in the world’s most valuable chess piece in the Google/Microsoft search and advertising war.
Factors favoring a deal: the companies believe Yahoo’s advertising platform would monetize AOL assets far beyond what they’re generating today (a little over $2.4 billion annually). And those against: combined dominance in mail (they’d have 48% of all worldwide email accounts according to Comscore, with Microsoft #2 at 42%) and instant messaging (39% worldwide combined market share, compared to 55% for Microsoft). In reality, though, email and instant messaging market share are only a problem if Microsoft then comes in and buys the combined entity.
Yahoo gets to make a case to stockholders that they dominate the online portal/services/content world, and who cares if they outsource search advertising to Google. Our position is that they can’t succeed in the long run without strong and competitive search advertising, although it may take the Department of Justice to get that message through to Yahoo’s executive team. Even after these entities combine, if they do, Yahoo still has a major long term competitive problem on its hands.
Please say this is a bad dream. Please?
it’s all just a bad dream. In reality, Yahoo accepted Microsoft’s $44 billion bid back in early February, competitve balance in search was brought back to the Internet, Yahoo’s shareholders made a ton of money and hundreds of the best and brightest Yahoo employees still work there.
Hind sight is 20/20. Didn’t AOL offer to buy out Techcrunch?
http://kara.all...eres-whos-next/
30M. Yahoo’s never going to put it on the table again. You’re no smarter than Jerry Yang.
I may not be as smart as Jerry Yang, but I would have taken that Microsoft offer.
Business savvy isn’t related to IQ. Software logic is reliable. People’s fears and hopes are not.
“I may not be as smart as Jerry Yang, but I would have taken that Microsoft offer.
”
no you are smarter than Jerry… a lot smarter than Jerry.
Heh. When you’re funny, you’re pretty funny Mike. I like that version of reality more, though I wouldn’t want change my current employment situation…
Mike Dude, In hindsight, it is easy to say that you would have done it. Maybe you’d have been greedy too? Greed has no class, you know that.
Hey, wait a second now….this is the best dream I ever had. My best dreams don’t usually come true, which is what’s weird about this. I’ve been chomping at the bit for two years now for these idiotic companies to merge and either drive themselves into the ground together – or else rise from the ashes of their collective incompetence to somehow thrive again. This could be fun to watch…
And yes, Jerry is an idiot. He had a Microsoft offer that valued Yahoo! at $36 per share but he refused it and the stock is at what now? $15.31? That’s criminal mismanagement, and he should be prosecuted for that. If he had cooked the books and been discovered, and the actual balance sheets showed such losses, he’d be tossed out on his ear in a heartbeat. What’s the difference between that and what he’s done by refusing MS’s offer? It’s criminal, I tell you.
Maybe I’m missing something but aside from AOL’s crappy messenger, does anyone use AOL anymore?
yes! 268 million people visited an AOL site last month, putting them fourth behind Google (742 m), Microsoft (645 m) and Yahoo (552 m). According to comscore.
When you sign into AIM, it loads AOL’s page automatically. I bet at least half of those visits were from AIM redirection.
AOL Money has also become a real rockin’ property. Marty Moe and the gang have added great things while Yahoo Finance has fallen asleep at the wheel.
Dammit !!!!! Combining AOL and Yahoo visitors will move them ahead of even Google ! I think Yahoo should go forward with it.
Mapquest, Engadget, Autoblog, Asylum, AOL.com, among many other brands that generate a good amount of traffic. Enough to be #4 as Michael stated.
And my personal favorite guilty pleasure, WOW Insider
/crumbles in shame
What, no mention of TUAW or Download Squad?
Is Yahoo doing this to continue to piss off Microsoft (since obviously an acquisition would no longer pass the DOJ) or is that just completely dead and this is Yahoo’s rebound (or was that the Google deal)?
Glad that any merger that comes out of this excludes the dial-up portion of the business. It’s worth something, but it isn’t very forward-looking and the only way “competitive balance” can be restored in the universe is for Yahoo! and Microsoft to out-innovate Google. Or better yet, some startup that hasn’t yet been profiled by TechCrunch can flip the whole world upside down and eat some of Google’s lunch.
15 dollars a share and holding steady- 5 year low. yahoo wants to outsource advertising to googl. aol selling sinking ship. Bebo Help Us!.
And why would sources close to the negotiation whisper this to you Mike?
Because they will be doing other companies that they will want Arrington to cover. Why else?
Because everyone whispers to Mike – didn’t you know? That’s why he can’t sleep at night…people just keep whispering. All the freakin’ time.
I thought that AOL used Google for it’s search results… Am I wrong.
Yes and they are completely worthless like Yahoo would be if they relied on Google for everything. I think congress gets that now. Googles a great company but we all know this is not a good road to keep down.
A better solution would be for AOL to make an ad deal with Yahoo, but Warner just wants to dump it.
These are two web 1.0 companies on the downslope thinking that things will get better if they join together. Why not join up with a company that is on the upswing. People may hate the idea, but I’d rather see Yahoo join with Facebook. AOL should be bought by Google or Microsoft and be used as a portal testbed for some of the new cloud computing technologies they are working one. This is just two tired portals getting together. The benefits of doing that don’t add up to much at all.
Will they call the new entity Yahoool!?
Nope, Yahfool!
this gonna be big..
http://gatesand...s.blogspot.com/
Smart move by Yahoo. Good for free market economics. Good for business and entrepreneurs. One less portal to contend with. Keep it up guys. Soon there will be only 3 or 2 players tops. Either way the space is less crowded. Will Ask.com sell soon and just cash out while the going is good?
Hmmm, US$15-US$20 billion maybe? Will they sell even though some may argue they may not be worth that much? Can anyone tell me what ask.com is worth? Would Microsoft buy them now that AOL may be gone soon? If they do get bought the market shrinks even more.
Cuil fcucked their entrance so for now they are no worth shiit in cash (about a Powerset valuation probably) or reputation much less market share.
Google is King and deserves to be King as they earned it. Stop hating Google because they Dominate and is expected to dominate in the near future. It is the same when some hated Microsoft for doing what was simple smart business. If they did not do that would either company be worth over US$100 billion?
Anyone read the Earthcomber lawsuit story written by Techcrunch? Check it out on site. Seems to be a blatant conflict of interest on the part of Techcrunch.
Is it me?
Ill. AOL & YaHoO ?
If this deal goes through Yahoo will regret it. Their motivation to buy AOL is to make it difficult for Microsoft to acquire them.
the result will be quite the opposite. a combination of those two has-been laggards (aol/yahoo) will actually facilitate a cheap ms acquisition.
If the deal gets done, i’m sure it’ll be sweet for Yahoo given that S&P500 is done about 30% on the year and multiples are contracting. I sure there will be sweet deals for startups with capital to jump on in the coming future. That’s what we’ll be waiting for, slow and steady.
I was expecting new mergers against Google but i wasn’t expecting that with Yahoo and Aol.
My only question is what happens if they do merge will they keep both portals and email address or will they be fazing in a @yahooaol.com or some other crap and drop @yahoo, @aol, @ymail, @rocketmail.com and one of the portals of just keep everything the same on the outside and just change everything at the backend.
Yeah, how do you keep your AOL customers and not use the name on their portal? So I guess the AOL portal logo will look like something seen on this post and the Yahoo portal just Yahoo.
I think if they close this deal it is great for Yahoo.
Actually AOL and Yahoo both are technology-media companies and it’s a better fit. However, Microsoft should swoop the combined company at the end.
why would Yahoo want to acquire all the liabilities that come with AOL? Platform A is the only last great hope for AOL and it’s got hair all over it and their core technology is being called into question. AOL spent 1.5 billion and is teatering on losing the ability to use Tacoda’s technology to monetize those investments. Yahoo just asking for trouble buying AOL and their rats nest of problems.
This recent article speaks clearly to the hidden liabilities Yahoo would be acquiring.
“Back in June, I wrote an article titled Why AOL’s “Platform A” May Not Make the Grade. The article discussed a series of changes being made by AOL to position itself as the world’s largest and most effective advertising network, building on its industry-leading Advertising.com network and the recent acquisitions of TACODA, Third Screen Media, Lightningcast, Adtech, Quigo and Bebo, collectively purchased for about $1.5 billion dollars (according to a recent interview with Lynda Clarizio, President of Platform A.) This realignment marked the final stage in AOL’s transition from an access business to a global, ad-supported web company.
This new entity, Platform A, says it is offering advertisers access to the most sophisticated targeting and measurement tools available in the marketplace across Platform A’s unmatched network of third-party sites, as well as AOL’s owned and operated sites. According to comScore Media Metrix, Platform A is said to already reach more than 90% of the domestic online audience. Platform A builds on the success of Advertising.com, which operates the largest third-party display network, and integrates behavioral targeting leader TACODA, Third Screen Media, which operates the largest mobile media network, market leading video ad serving platform Lightningcast, and ADTECH’s global ad serving platform.
Previously, I pointed out that I believed a possible material weakness existed in Platform A, one that had the potential to impact its entire structural integrity. That weakness is a lawsuit in which Modavox, (MDVX.OB) a small Phoenix Arizona based company, is suing Tacoda for patent infringement. I believe these patents were issued in 2002 (an interesting date as you will note below in relation to Be Free’s purchase by ValueClick (VCLK)) and 2007 respectively. Their issuance calls into question just who owns the behavioral targeting technology Platform A is both leveraging and dependent on for the monetization of its entire business plan.
Despite the suit having been filed prior to the actual closing of the Tacoda acquisition, AOL management apparently dismissed its relevance and proceeded to close the acquisition for a reported $275 million. Could this prove to have been a costly mistake for Time Warner (TWX) shareholders? If it’s proven that this little company does in fact own the patented technology that AOL thought they were buying with the purchase of Tacoda, then one must certainly wonder if this costly mistake could serve as cause for a potential shareholder action? Interestingly enough, in the legal section of Time Warner’s last filing, I saw little to no mention of this issue disclosed within.
Perhaps AOL’s management and Lynda Clarizio aren’t concerned about Modavox’s patent infringement suit? In my last articlem I posed the question “what happens if they lose this suit and can’t use Tacoda technology anymore?” Perhaps they view this as just one isolated suit by a little guy trying to cash in? Don’t be so sure. Enter ValueClick.
According to MediaPost, ValueClick has previously filed and settled lawsuits against Blue Lithium and Revenue Science for patent infringement on the general principles of behavioral targeting. Now, ValueClick has filed a similar infringement lawsuit against Tacoda. The patents at issue, one issued in 1998 and the other 1999, both deal with creating behavioral profiles of web users.
Ian Lee wrote a nice article containing some interesting commentary called “The End of Behavioral Targeting as we know it” Interestingly, he comments that in 2002, ValueClick acquired Be Free in a deal valued at $128 million. Many had long wondered why the high price tag was paid for Be Free hot on the heals of the Internet bust. Six years later, the real reason for the high price tag has become very clear. The real value in Be Free wasn’t its affiliate platform but the two behavioral targeting patents that it holds, the same two patents they are now leveraging against Tacoda.
One must assume ValueClick views these patents as far more valuable today than the $128 million they paid for them six years ago. It’s likely anyone seeking to acquire those same patents now could expect to pay a multiple of their original sales price. Perhaps AOL’s purchase of Tacoda for $275 million might be a good starting point, or the $300 million Yahoo (YHOO) paid for Blue Lithium. Wait, does either of those companies even own any patented technology for behavioral marketing or targeting? Based on ValueClick’s already settling with Blue Lithium and Revenue Science, and both Modavox and ValueClick going after Tacoda, it would appear not.
So ValueClick owns two patents and Modavox owns two patents (with a couple more rumored to be pending), all seemingly critical to the process of behavioral targeting and marketing. According to David Morgan, Founder of Tacoda, behavioral marketing could jump from $700 million last year to about $10 billion in 2013 making the stakes very high. Both companies are currently suing Tacoda, owned by AOL, for patent infringement through the alleged use of their respective patented technology. Are these patents enforceable, they certainly appear to be. Are they valuable, again they appear to be. But what is the difference between the ValueClicks and the Modavox patents? Ah yes, the million dollar question!
To the best of my understanding, ValueClicks patents acquired for $128 million in 2002 are again related to creating behavioral profiles of web users. It would appear they involve the process of gathering data which then may be used to better target the consumer via online advertising. Modavox’s patents on the other hand relate to the customization of content or what you do with the data once acquired.
In other words, when companies like Tacoda and perhaps even ValueClick procure the information, it appears that it’s Modavox’s patented technology which allows the actual advertisement to be tailored to the consumer based on that data. So perhaps ValueClick owns the front end of the behavioral marketing process while Modavox appears to own the back end. This begs the question “what is the all the behavioral data in the world worth if you can’t monetize it through custom tailoring of advertisements?”
It also begs the question if AOL acquired Modavox, would this potentially help them in their suit with ValueClick? Just a few of the question I’d love to ask Mr. Falco and Ms. Clarizio.
As we see a continued proliferation of advertisers shifting their ad spend online, advertisers will continue to seek and demand that their message has a reasonable chance of reaching their intended target audience. Gone are the days when advertisers will accept the old “Spray and Prey” methodology of online advertising. It is valuable patented behavioral technologies like those owned by both Modavox and ValueClick, which facilitate this all important process.
Again, until this important question of just who the rightful owner of this important technology is. I expect Platform A will continue to fail to make the grade.”
Can someone tell me that if this does happen what happens to companies that are in talks with AOL on a content deal? The reason I ask is we have been talking to AOL for about 6 months and just now we have heated up talks and hope to have an answer from AOL this month. Any help I would appreciate.
These are last desperate moves for 2 companies that are in serious trouble. In a tough economy, money is what you need to focus on.
Online advertising is growing, but slower will be around $38-40 Billion in the US. Roughly 60% is Search, with Google 70-80% of Search — that would mean 50% of Internet ad $$’s will go to Google or about $18-20 Billion.
The remainder is $10 Billion in Remnant Networks, $2-3 Billion in Vertical Networks and $2 Billion in Social Networks in Display. Video is in the $100’s of Millions, with YouTube the lost leader at $100M, and Hulu at $20 million.
Given all of AOL search revenue is already Google, and Yahoo may give that to Google, and neither have major social network- MySpace is 70% of Social Networking revenue at $1B and Facebook is 25% at $200 Million (But that count $100 Million in Search I think) So all of Yahoo and AOL’s remaining revenue is Display.
If they combine, they will be Number 1 in Display (Yahoo already is Number one) and their competition will be MySpace (Number 1 in Display volume, not revenue) and vertical media like New York Times, Glam, CBS, WebMD, and Viacom — and of course Microsoft! With Google stumbling in Display and video ads, this will be a 3 horse race- Yahoo, Fox, and MSN, with Google likely to build or buy someone, and one other player- CBS, Glam, or Viacom — not NYT or WebMD.
Within display, AOL is the king of remnant with Platform-A, and Yahoo of portals, but they are both missing a good publisher solution –like AdSense for Search or Overture used to have. In a down economy, I think Yahoo is absolutely nutz to not do a deal with Microsoft, and even with AOL is likely to fail.
Oh, here is a good one: from yahoo 8-K filing in 2001:
In particular, we face significant competition from AOL Time Warner and Microsoft (MSN). The combination of America Online and Time Warner provides America Online with content from Time Warner’s movie and television, music, books and periodicals, news, sports and other media holdings; access to a network of cable and other broadband delivery technologies; and considerable resources for future growth and expansion. The America Online/Time Warner combination also provides America Online with access to a broad potential customer base consisting of Time Warner’s current customers and subscribers of its various media properties. To a less significant extent, we also face competition from other companies that have combined a variety of services under one brand in a manner similar to Yahoo!. In certain of these cases, most notably AOL Time Warner and MSN, our competition has a direct billing relationship with the user, which we generally lack, except with respect to users of certain of our premium services. This relationship permits our competitors to have several potential advantages including the potential to be more effective than us in targeting services and advertisements to the specific taste of their users.
Can someone tell me that if this does happen what happens to companies that are in talks with AOL on a content deal? The reason I ask is we have been talking to AOL for about 6 months and just now we have heated up talks and hope to have an answer from AOL this month. Any help I would appreciate.
Were a start-up and I could use some positive feedback if possible……
They’ll end up in the deadpool.
Jerry Yang trotted out the Mail/Messenger monopoly card in trying to fend off MS, but would it really make any difference at all? Certainly MS/AOL/Yahoo make almost no money on IM, if anything they are loss leaders to get eyeballs into the portal. I’d be interested to hear what Justice etc thought of a market cornering of a free email/im service.
Yahoo just wants to be the big boy of any deal that it takes part in.
Maybe being bottom isn’t Yang’s thing.
do you blame them?
When selfishness destroy $20B in shareholder value…
What about a Microsoft/Yahoo/AOL joint advertising system (not a merger…)? It’s not going to be easy going up against Google.
I’d like to see this happen. Better assimilation than irrelevance for AOL.
by the end of crunt time =– AAOL n Yahoo wont servive as an independent entity
I agree, but by the time that happens it’ll be too late for them to b competitive. File this one under Lycos.
Eric, Sergey & Larry are laughing their way to advertising dominance. A MSFT/YHOO combo was the only threat.
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Seriously? Doesn’t Yahoo realize that the only people who use AOL are old folk who finally figured out how to get that CD they got in the mail into their computer? How is capturing these sheltered internet users the future of Yahoo? I guess there is something to be said about the habitual use of Yahoo that alot of users fall in to (home page, news, etc), so maybe its not too unlike AOL after all!
I love stereotypes!
This deal reminds me of the Sears and Kmart merger.
I hope this makes Yahoo better and open up more to international users
@ Stu
Techincally that wasnt a merger Kmart brought Sears outright
Good news, the deal is off. No more time waste on AOL Yahoo……Yahooooo
I agree, but by the time that happens it’ll be too late for them to b competitive.
I suspect the deal is dead. It’s too bad, because AOL brings Bebo to the table and Yahoo has been struggling to develop a social network.