Poker Time: AOL Is The Flop

I'm in Vegas right now, so allow me a poker metaphor as I consider the whole Yahoo/MSFT IM and Google/Comcast/AOL thing. The more I think about this, the more I believe that these two deals are linked, intentionally or not. In my last post about Yahoo and MSFT interoperating…

FlopI’m in Vegas right now, so allow me a poker metaphor as I consider the whole Yahoo/MSFT IM and Google/Comcast/AOL thing.

The more I think about this, the more I believe that these two deals are linked, intentionally or not. In my last post about Yahoo and MSFT interoperating around IM, I suggested this is a reaction to Google Talk. Kind readers jumped all over me. You were right to do so, as I did not explain myself very clearly. What I really should have said is, it’s a reaction to the potential for Google to interoperate its IM client (Google Talk) with, oh, say, AOL’s (AIM). It’s a battle in a larger war for AOL, and for overall market share.

If you stare at how the battle lines might be drawn up here, the Google/AOL partnership discussions demonstrate that Google is actually starting to play poker in a calculated, strategic fashion, much as its peers in the media world have been for years. Google is at the table now, and like everyone else, it’s eyeing the flop….and the flop, folks, is AOL.

IM and VOIP are critical applications to all players at this table, right? If Google struck a deal with AOL, they could defend their fledgling toehold in IM, and extend it to one of the largest installed bases in the world.


What else is critical to Google right now? Access to traffic of good intent (ie, search traffic and good content traffic). AOL has both, and could help Google defend currently owned search turf, as well as grow its share of this critical revenue/profit driver.

What else? Google must find new users to whom it can distribute the all important Google Toolbar/Sidebar/Destop Search et al – Google knows it has to get into deeper relationships with its users to prosper. AOL has shitloads of users, and were a deal to go down, it’d be pretty straightforward to turn all of ’em into Google clients.

Comcast, from what I can tell, wants to convert AOL users to Comcast broadband customers. Makes sense. Comcast doesn’t play where Google does, so a partnership might work. And while it might be a stretch for Comcast, the company does not have an open distribution network of any significance, and AOL just might make sense should Roberts & Co decide they need to diversify away from its two businesses of pure broadband provisioning and closed cable networks, which is threatened by TV over IP, among other things.

When I interviewed Jonathan MIller on stage last week he said he knew he was a “swing vote” in the portal wars. There is clearly a war going on right now between Google and Microsoft for the prize of AOL, and Yahoo and Comcast are playing in so far as they can cause trouble, and perhaps, swoop in at the last minute and steal the bride itself.

This is a new game for Google, which has in the past pretty much set itself apart from the rough and tumble world of Big Bets Based on Business Strategy. My gut reaction to the news was that this was a bad idea – Google does not have the Media Player DNA, and in its core believes it should win through innovation, not dealmaking. This next stage of the company’s life should be very interesting to watch. My gut tells me that in the end, Google will get cold feet, mainly because the price (of either a deal or an acquisition) will be too dear, and AOL will fall to Microsoft, who will be willing to overpay. But watch Yahoo here, and Comcast – either one might decide to up the ante and change the game as well.

12 thoughts on “Poker Time: AOL Is The Flop”

  1. This swing vote will come at a huge ransom. MSFT has the cash. Google has very little by comparison.

    Gates would get a two-fer. He elevates his search traffic and freezes out Google Talk from the wider IM community.

    Frankly TWX shareholders deserve to be in this position.

  2. What about Newscorp? Where do they fit? (Disclaimer: I work at MSN but am not involved in any way in the areas discussed in this post. I have no special knowledge of MSN’s strategies in this area. Just curious as to your thoughts John. BTW good job at the MS Research talk the other day.)

  3. This makes and proves that google is just
    like any other company..Mortals..

    I thougt google is something else and
    make the industry follow them.. The deal
    between gtalk and Aim makes utmost sense

    As not many people use gtalk and its hard
    to get new customers bcos most of the users.
    dont want to run 5 types of messangers…

    Google down to earth..Let us watch

  4. With great valuation, comes great expectations. Google was plenty profitable before going public. For tech companies, though, going public means promising growth to investors. In Google’s case, the promised growth is expected to be great. I hope their reach does not exceed their grasp.

  5. You did not consider that Jon Miller also mentioned in his conversation with you, that AOL considers AIM to be a strong brand unto itself. In which case, I find it hard to believe AOL would allow Google to extends its own IM client to the base currently using AIM. Of course..AOL may not have much choice in the matter although sounds like a potential cultural problem…something AOL is used to I guess.

  6. I agree that Microsoft is the logical investor and AOL’s investor of choice. To use your poker analogy, which is an excellent one, I think there is a big bluff going on here. If, in fact, the meeting between Eric Schmidt of Google and Jon Miller of AOL was about a possible purchase (as reported in the NY Times). I believe it was a meeting between two customers and that Time Warner planted the story to suggest that the meeting was about Google being interested in order to scare MSN into paying more.

    I suggested in my blog,, that Time Warner plated the story about the TW/MSN talks in the NY Post several weeks ago for the same reason.

    Time Warner is negotiating in press–a familiar pattern.

  7. Google will do the deal here with Comcast cause there are bigger implications down the road that you fail to mention John. Namely, Tivo. Tivo becomes Comcast’s partner once the DirecTv deal soon ends. Therefore, Comcast becomes a great partner for Google on that front. Imagine Adwords on Tivo. Also, I expect that Apple will become a very good partner for Google/Tivo/Comcast. That new Front Row product needs Tivo built in. Fortunately for Google, Apple hates Microsoft and Apple is a natural partner for Google. I think Apple is the ace in the hole here. Regarding the AOL deal, Microsoft can only tell AOL what they hope they’ll be able to do while Google can tell AOL how’ll they’ll improve and further compensate AOL based on what they’ve already done. A far cry from the pro-forma stance that Microsoft brings and I think, worth more to AOL than the billions more that Microsoft will pay.

  8. I agree with this statement:

    “and in its core believes it should win through innovation, not dealmaking”

    Let’s see if they’re able to maintaing that core belief.

    In the end, Google may inherit the earth.

  9. Google needs access to AOL’s “good content traffic”? Come on, John. There’s no way this deal includes Google’s ownership of AOL’s content. It already has access to the best content in the world. IM, sidebar, keeping Google as the default search engine, yes. But content?

    I’ll bet you $100 that any deal does not include Google owning AOL content.

  10. What the purpose in it for Google? AOL content? Ha! Three times. I would believe anything but this. There is certainly a game, but paying that money for nothing? Don’t think so. At least I hope.

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