Dear Google, I Have Found Another Suitor.

Navigation: Main page

Author: Fonda, Daren

Are virtual wedding bells about to chime for America Online and Microsoft? Senior execs from AOL and Time Warner (which owns AOL and TIME) have been meeting with Microsoft officials for several months, trying to work out a deal that could unite AOL with Microsoft's MSN network. The talks, which were first reported in the New York Post, have risen to the highest levels of both companies, involving direct discussions between Time Warner CEO Dick Parsons and Microsoft chief Steve Ballmer, says a source close to the talks. Negotiations are now at an impasse over key technology issues, such as whose instant-messaging platform would be used. But a variety of proposals remain on the table, including the creation of a separately traded company. "We could take a more modest approach with co-marketing agreements," the source tells TIME, "but the bias is, if we're going to do this, let's really play to win."

Why get together now? Microsoft and AOL fought bitterly during the browser wars of the '90s and vied for dial-up customers before broadband took off. Today they're losing billions in ad revenues to Google and Yahoo. By consolidating their websites into a mammoth network, they could sell ads across the board. Hooking up would be a defensive play too. Google raised $4.1 billion in a stock offering last week and has been encroaching on Microsoft's most precious turf, the computer desktop. Microsoft is worried about falling further behind Google in the Web-search races and would love to get AOL to replace its Google search engine with Microsoft's. The AOL unit could fetch as much as $20 billion on the market, and spinning off a piece in a joint venture with Microsoft would ease the pressure on Time Warner's Parsons to generate higher returns for shareholders. There's no word yet on a prenup.

PHOTO (COLOR)

~~~~~~~~

By Daren Fonda