Microsoft and AOL Rumors Spread

Posted on September 18, 2005

The Mercury News reports that a New York Post article has spread rumors that Microsoft is considering an acquistion of partnership with Time Warner's AOL division.

Microsoft is in talks with Time Warner over the sale of AOL or a business partnership, the New York Post reported Thursday. Details of the discussions are murky, but the two companies appear to be discussing a wide array of possibilities, including combining efforts in Internet searching, instant messaging and online advertising, according to the Associated Press

While speculation centered on Microsoft buying all or pieces of AOL, the New York Times reported that Microsoft offered to sell its Internet division to Yahoo and AOL so it could focus on Web searching. The offers ultimately spurred the ongoing discussions with AOL.

Microsoft and AOL declined to comment on the reports.

An alliance between the two companies could result in an even more formidable competitor to Google and Yahoo, both of which have strong head starts over their peers in search technology and online advertising.

As the Mercury News article suggests AOL does have a large amount of online content. Time Warner also owns CNN, popular magazines and other subscription concent. If there was a merger it is not clear what would happen with the relationship between AOL and Time Warner. Microsoft already has a content deal with NBC such as the popular website. A New York Times article looks at the significant damage an AOL and Microsoft combination could do to Google's advertising business.
One of the most elaborate proposal under discussion would involve combining America Online with the MSN Internet portal and dial-up Internet business, creating the world's largest Internet company. The venture's Web search would be provided by Microsoft. A combination along those lines would be a significant blow to Google, which provides the Web search on AOL's services. This year, 11 percent of Google's revenue came from advertising it placed on AOL sites.

A combination of AOL and MSN would have 18 percent of the search market in the United States, according to Nielsen NetRatings, making it third after Google, with 46 percent, and Yahoo with 23 percent.

The acquisition would also be significant from the perspective of instant messaging. AOL, Yahoo, Google and MSN all have competiting messenger technologies. And eBay also now has one with its recent Skype acquisition. The blogosphere is also discussing the possibilities. Technorati already shows over 600 blog posts debating the outcome of an AOL-Microsoft deal.

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