Microsoft edges ahead in deal with AOL

By Steve Malone

Posted on 7 Dec 2005 at 10:27

A deal between one of the big search engines and AOL looks like materialising in the coming weeks according to the Wall Street Journal.

According to anonymous sources, the Time Warner board is leaning towards a deal with Microsoft although this might be misinformation leaked in order to get a better deal from Google.

The deal seems to be somewhat short of the proposed merger or acquisition that was on the cards a few weeks ago. Then, the talk was of either Google or Microsoft taking a substantial stake in AOL. Now, however, it seems that the terms are centred on the advertising business with AOL.

Microsoft would badly like to do a deal with AOL. Currently some ten per cent of Google's advertising revenues come from AOL. If Microsoft could take away that business, it would be a major blow to Google and its attempts to compete with the software giant as they do battle for the delivery of Internet-based services to customers around the world.

AOL has slowly been transforming itself from the traditional 'walled garden' for which it is still best known, to a content based service built largely on the huge amount of content from Time Warner's interests in publishing, music, TV and films. For both Google and Microsoft, a deal with the Time Warner content would be a major prize. However, any deal that looked like a takeover by Microsoft may attract the attention of anti-trust authorities in the US and beyond. Regulators may want to look closely at a merged MSN and AOL and the affect it might have on competition.

The third big search engine, Yahoo!, has already reportedly pulled out of talks with Time Warner leaving a two horse race. According to the WSJ, a deal with Yahoo! would have involved a stock swap worth $14 billion for the AOL content business with Time Warner keeping control of the ISP business.

Sources now say that a deal with either Google or Microsoft is on the cards before Christmas.