AOL, Time-Warner to Merge

The bal­ance of Inter­net val­u­a­tion has finally moved into the realms of major acqui­si­tions. Last year, big merg­ers were in the tens of bil­lions of dol­lars and mainly involved Inter­net com­pa­nies merg­ing with other Inter­net com­pa­nies. With this deal, AOL is show­ing that Inter­net dol­lars are very powerful.

The Inter­net comes of age

A sig­nif­i­cant line in the AOL press release:

When com­plete, Amer­ica Online’s share­hold­ers will own approx­i­mately 55% and Time Warner’s share­hold­ers will own approx­i­mately 45% of the new com­pany. The stock will be traded under the sym­bol AOL on the New York Stock Exchange.

This essen­tially means that this is not quite a merger of equals but one where AOL share­hold­ers will make more out of the deal than Time-Warner’s. It also means that Inter­net play­ers are now taken very seri­ously, pos­si­bly sup­plant­ing tra­di­tional companies.

A major land­scape change

Beyond the mas­sive head­line also comes a major land­scape change. For starters, AOL Time-Warner will now be mas­sive enough to com­pete with Microsoft. Microsoft cur­rently stands at about $587 bil­lion in mar­ket cap­i­tal­iza­tion and AOL Time Warner will have a bit over that in terms of capitalization.

Fur­ther­more, the new com­pany has major hold­ings in every media field: TV, Radio, Music, Books, Movies, Online. This means that this is the emer­gence of the first com­pletely cross-media com­pany in the world.

Pre­vi­ously, com­pa­nies had dom­i­nance in either online or offline spaces but not in both areas at the same time.

This also means that Yahoo!, Excite@Home, MSN, and other play­ers on the por­tal space have to react very quickly. They might need to be able to offer access as well as con­tent pro­duc­tion and con­tent deliv­ery. Over the next year or so, expect one or two of those to essen­tially fold.

This deal also her­alds the emer­gence of the click and brick busi­ness model. Much like many years ago, online play­ers were talk­ing about brick and mor­tar shops not hav­ing an online strat­egy, it has now become increas­ingly appar­ent that online com­pa­nies need to look to the offline world.

Last but not least, it makes it pos­si­ble to have Inter­net com­pa­nies acquire or merge with non-Internet com­pa­nies. Now that Time Warner has led the way, it will not look as bad if K-Mart were to merge with Amazon.com, or Dou­bleclick were to buy a large .bam adver­tis­ing agency like Ogilvy, for example.

The old Chi­nese curse always said may you live in inter­est­ing times. Our times are def­i­nitely inter­est­ing. Whether AOL and Time-Warner man­age to accom­plish this merger is still up for debate (big merg­ers are very dif­fi­cult and often fail to pro­duce the value they her­ald) but it is now obvi­ous that we are mov­ing into a brave new world, where the smaller play­ers might have to find a new way to fight the new giants cre­ated from such mergers.

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