Do you Yahoo!? Go on Murdoch, you know you want to

2000-02-28

It is now six weeks since AOL and Time Warner announced their intentions to wed, throwing the industry into turmoil. But which industry? This is the question that is making things so hard for other companies to follow suit. AOL is an ISP, a Portal, a software company and a service provider. Time Warner is a news organisation, a film studio and a publisher. Not to mention the wide variety of other interests that the two companies now share. Orrin Hatch, the US Judiciary Committee chairman, was quoted on News.com as saying that the deal could have “profound public policy implications”. Too right – it creates a company the like of which the world has never seen.

Driven by fear and loathing as much as by the smell of opportunity, many others are keen to follow the lead that AOL Time Warner have set. One such example is Rupert Murdoch’s News Corporation, which has revealed that it is holding preliminary talks with Yahoo!, the portal company. News Corp has – or had – many similarities with Time Warner, owning film studios, television channels and publishing companies. But what of Yahoo!? Is the company right for News Corp? We would argue no, not in its current form, but it shows potential.

The problem with Yahoo! is easy to spot when it is positioned next to AOL. The two companies were never seen as rivals because, simply, they were not: Yahoo! was a portal, and AOL was a global ISP. Despite having teamed with AT&T and Mannesmann to provide Yahoo!Online, the company is not renowned as an ISP – indeed, as these partnerships demonstrate, it is not. AOL, however, most certainly is an ISP with global reach. Yahoo!’s lack of its own ISP presence is a weakness for the company, as it means that it has less control of its potential customer base. An individual may have several ISPs, but is likely to retain one as its primary access to the Internet. However, to most, Yahoo! is one online resource amongst many.

The AOL Time Warner merger demonstrates the coming together of three components, all of which are essential. The first is the communications channel, akin to the Web portal or the TV station. The second is the information to be transmitted or published. The third is the underlying technology – the communications network. It is this network which is lacking to both Yahoo! and News Corp – the latter has an enviable satellite service in the shape of Sky, but this is not to be the dominant communications channel.

An alliance between Yahoo! and News Corp can be successful, but only if it is followed by investment in a communications infrastructure company. This could either be a wireless provider or a land-based provider but is most likely to be a combination of both. It is unclear at this stage whether the combined News Corp/Yahoo! would be the suitor or the target of such affections. What is clear is that only the resulting corporation would be sufficiently powerful to take on the giant that is AOL Time Warner. Suggested tie-ups between News Corporation and Yahoo! can only be steps on the way.

(First published 28 February 2000)