All products featured on WIRED are independently selected by our editors. However, we may receive compensation from retailers and/or from purchases of products through these links.
Microsoft CEO Steve Ballmer says his only interest in buying Yahoo is in obtaining scale for the company's ad network.
"The question is, is there a better way to get to scale more quickly?" Ballmer toldthe Wall Street Journal. "We like our strategy. We don't like our position . . . I'd like to have a better position relative to the guy who sells the most advertising."
Ballmer also indicated that he's not interested in Yahoo's technology. The implication points directly at most Yahoo insiders' worst fears: If Microsoft acquires Yahoo, it's eventually going to scrap the Sunnyvale company's beloved Unix servers and replace them with Microsoft technology.
If that's the case, why pay a premium for a company like Yahoo that's loaded with technology, some of it still virtually untouched since the day Yahoo bought it?
The only other companies that can deliver the sort of scale Microsoft needs to grow its ad business, according to Ballmer, are Google (impossible), MySpace (taken), Facebook (Microsoft already has a stake), Yahoo (he's trying), MSN (home team) and AOL. One of these things is not like the other: Among those names, the only company really ripe for a takeover, and which Microsoft hasn't made a pass at yet (that we know of) is AOL.
If Ballmer really means to obtain "scale" for the Microsoft ad network, why not buy AOL? Our guess is that it would sell for one-fourth the cost of Yahoo and it would certainly be less trouble, given that Time Warner has been rumbling about cutting AOL loose for over a year now.
As it stands, Microsoft could pay upwards of $45 billion for Yahoo.
AOL, by contrast, could probably be bought for between $10 billion and $20 billion. (Google took a $1 billion stake in AOL a few years back, which placed a $20 billion valuation on the unit, but according to recent reports its value has been pegged at roughly $10 billion.)
Traffic-wise, AOL isn't far behind Yahoo -- in March, Yahoo had a global reach of 96.3 million unique users, while Time Warner (parent company of AOL) had 88.2 million users, according to Nielsen NetRatings.
And with AOL, Ballmer would know he's not buying a bunch of technology that he has no use for: He'd get a massive user base, an enormous supply of display advertising inventory, and a growing ad network.
Conventional wisdom is that there are two potential fates for AOL:
Either it will be sold off at a fire sale price to Yahoo or it will continue to limp along behind Google, MSN and Yahoo. Neither scenarios are very pretty.
Part of AOL's problem, according to ad industry insiders, is that despite its wealth of assets, it hasn't been managed well.
"This has been an incredible year for internet advertising -- we had the writers' strike, elections and so many other factors that made the business come together. The fact that [AOL] wasn't able to take advantage of that from an ad-revenue perspective is somewhat astounding," says Steve
Kerho, vice president of analytics, media and marketing optimization at
Organic. (Kerho has worked extensively with Microsoft, Yahoo, Google and AOL.) "As an advertisers, Yahoo and MSN are much easier to work with. It's less complicated. You know exactly who your account people are, and there’s not as much turnover."
But in the right hands, AOL has many of the ingredients for a successful advertising business: It's got one of the top five most trafficked web properties; an enviably enormous ad network (it delivers more than 3 billion ad impressions per day); and much of its potential hasn't been tapped yet.
Photo: Sorbo Robert/Corbis
