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Is AOL Microsoft's plan B?

By Barry Collins

Posted on 6 May 2008 at 09:12

Having failed to woo one fallen giant of the internet world, Microsoft is reportedly courting another - AOL.

The software giant is said to be in preliminary talks with Time Warner over a potential purchase of AOL, having failed in its bid to lure Yahoo.

Microsoft is reportedly keen on AOL for the same reasons it was attempting to buy Yahoo: eyeballs. AOL still has an estimated 85 million users a day, helping Microsoft to expand its advertising base.

In his letter to Yahoo CEO Jerry Yang at the weekend, Microsoft boss Steve Ballmer stated his willingness to talk to other internet companies. "We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners," he wrote.

AOL, however, is a almost a case study for botched tech takeovers. When AOL merged with Time Warner in 2000 the joint company was valued in the region of $350 billion. Just two years later, after the dotcom crash, the company was writing down its value by $99 billion, to record the single biggest loss in American history. By 2003, the company had dropped the AOL part of its name, and last year the AOL side of the business posted revenues of $5.2 billion.

Quite why Microsoft wants a business that has seen its userbase gradually decline since the start of the century is unclear, but it's likely to be far cheaper than the $44 billion Microsoft was prepared to stump up for Yahoo.

Whatever the outcome, Microsoft won't be getting its hands on the UK branch of AOL - that was sold to the Caprhone Warehouse in 2006.

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