And Pigs Might Fly
Does anyone really believe that Google would buy AOL? Lauren Rich Fine of Merrill Lynch seems to think so.
Rather worringly she seems to have some rather bad mathematics. Google, they estimate, receives around 12% of their revenue from AOL. If they switch to MSN Google could lose between 5 and 10 percent of their earnings, she says. But agreements like that of Google’s with AOL are very low margin (the average traffic acquisition cost is 80% and larger deals even higher). So the effect would be next to nothing (well <2% of EPS).
The one thing everyone seems to be missing is that why would Time Warner sell AOL? Unless they got $25bn+ I can’t see them doing it. They are on the cusp of rolling the dice and the exciting times are just beginning. As for the tie up with MSN, there is no way in hell Bill Gates is going to form a JV on one of the most important strategic fronts Microsoft is fighting. That makes a deal between MSN and AOL a very long shot, unless Microsoft buys it outright.
The two ships are not sinking but they are on their last legs in the search world. One plus one would certainly *not* equal two or anything greater. With two of the largest corporate parents both will want to control their destiny in this very important juncture of the industry. I just can’t see a deal happening.
