Big Changes Ahead for AOL

Dennis Faas's picture

Last week, Time Warner's new CEO Jeff Bewkes confirmed the corporation would separate AOL's Internet dial-up division from the company's advertising and content business. This leads analysts to believe that Time Warner may sell one or both of its AOL divisions.(Source:

"We're working on separating AOL's access and audience businesses so we can run them independently. This should significantly increase AOL's strategic options," Bewkes said during a conference call with investors.

AOL's subscription business has been faltering since the Web 2.0 explosion, and rival firms such as Google and Microsoft have profited far more from relevant text ads than AOL's mix of content and advertising. In the past six years, AOL has fallen from 30 million subscribers to a paltry 10 million. To counteract this, the company has looked to increase its advertising interests: last quarter AOL grew by 18%, but Google expanded by a full 51% during the same period. (Source:

The main problem with such an acquisition is that there are no apparent suitors for AOL at the moment. With Google occupied by its purchase of DoubleClick and Microsoft's courting of rival Yahoo, no one seems to be available to consider AOL. Rupert Murdoch of News Corp has apparently rejected the idea outright, and IAC/Interactive Group would only consider purchasing AOL at a substantial discount.

However, there are rumors circulating that Yahoo may be quietly reconsidering a merger with AOL, as it prepares to reject Microsoft's takeover offer. According to The Times of London, Lehman Bros. and Goldman Sachs & CO., financial advisers to Yahoo are advising the company's board to take a second look at a deal with AOL as a possible escape route from Microsoft's hostile bid. (Source:

In addition to AOL, Time Warner may also look to unload its 84% interest in Time Warner Cable. The cable company runs as a separate corporation and Bewkes believes a split between the two companies may be in the best interests of both. Time Warner is also expected to cut close to 100 jobs in its corporate offices for a savings close to $50 million.

The current battles over Internet dominance seem to be changing daily. Both Yahoo and AOL were once Internet pioneers, but relatively weak performances may result in their disappearance from the world wide web altogether. With online superpower Google being chased by long-time software leader Microsoft, smaller companies may find it difficult to stay in the fight.

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