So you might be thinking, why on earth would this be a good deal for either party? How can two also-rans of the internet fit well together? How can they compete against the all mighty goog? Well this harks back to my theory on the evolution of advertising and the shift to behavioral advertising.

At the moment, Yahoo is probably the number one player in this field. AOL is distant second, but the two are definitely the leaders in this market. With a combined effort on their part, they can merge the patents and IP advantages they each posses and come out with some amazing ad solutions. AOL’s Platform A initiative is already strong, but what it really needs is the massive pageviews Yahoo! has. Yahoo’s behavioral targeting is good, but could benefit from some of the stuff AOL has + AOL’s extra pageviews, the social network they just bought (Bebo), and more.

What would Yahoo get out of buying/merging with AOL?

  • Bebo – 3rd largest social network in the US and Europe
  • Platform A/Advertising.com – One of the largest behavioral and display ad businesses on the net. Reach to millions of sites, which Yahoo! publisher network never was able to do (probably because they never accepted anyone!)
  • Netscape – Still millions of browsers out there, tons of traffic.
  • AOL Mail – LOTS of additional users to be migrated into the Y! Mail platform
  • AOL dialup business – something they could quickly sell off to recoup some cash
  • AOL Blog Network – these are a great fit for Y! content offerings. Esp. Y! Finance

What does AOL get from this deal?

  • No more Time Warner! This has been a deal that dragged them down so far, its embarassing
  • Stability – Y! has lots of cash on hand and TONS of traffic, and is less fickle than TW
  • More reach – again Y! traffic
  • LOTS of cost savings – data centers alone would be consolidated
  • Cross promotion
  • More data for their ad programs.

So to me this seems like a great fit, even if Microsoft does buy Yahoo, it would cost them another $20 Billion to get it done after an AOL merger. To me this seems like a great move, even if Y! does outsource the monetization of some of its search traffic to Google. I see them as a better fit together than Y! + MS.