Zomack

Will Microsoft Now Turn Its Eye to AOL?

As a consumer, I'm not a huge fan of recent consolidation in this space. Ideally I'd love to see a bunch of competitors offering differentiated and compelling services/products. Ideally.

As aninvestor, though, I understand that consolidation is inevitable in "hot" sectors like this, especially when you've got cash-rich, high-growth behemoths involved. If MSFT and YHOO are obviously "worried" enough about GOOG increasing an already dominant position, then TWX/AOL would be lucky to even be around(in a meaningful way, that is) in 18 months without some sort of major partnership or outright takeover.

My basic observations are these:
- GOOG has been and is in the lead here, and they're only increasing market share as the quarters pass. They've got tons of cash and are not slowing down.
- YHOO is desperate and is reaching. If GOOG deal gets trimmed(or denied) by anti-trust concerns I could see them crawling back to MSFT(or even AOL or some up-and-comer looking to make a splash).
- MSFT knows it's in a distant second place but has tons of cash and a culture that cannot stand being Number Two(no matter what it takes to be Number One). Hard for me to bet against this combination in the long run. Having said that, you really can't win EVERYtime.
- AOL is one of a single-handful of even somewhat meaningful acquisitions left. TWX and Icahn are open to an AOL deal.

Put it all together and...
- YHOO-MSFT end up in eachother's arms again
- It turns into GOOG/YHOO versus MSFT/AOL
- GOOG stays #1, MSFT settles for #2 and YHOO/AOL fight for #3 scraps.

Now, I'm not making a judgement call on whether any of these is "good"(for investors, consumers, or investors) -- I've got to do more research. But, I do think it lays out the landscape, in general.