As rumors about a Yahoo-AOL merger grow louder, industry experts caution that such a deal could create more problems than it solves.
Yahoo is likely pursuing the acquisition because it needs a short-term, sure-fire way to boost its value at a time when its stock is at a dangerously low point.
Buying AOL is one of the few ways in which Yahoo would be able to instantly increase its revenue and share in key segments.
Its board and top managers continue on the receiving end of heavy criticism for, in the view of their detractors, causing Microsoft's acquisition bid to collapse.
Microsoft's spurned offer of US$33 per share now looks extremely attractive with Yahoo's stock trading between $12 and $13.
Meanwhile, AOL's weak advertising revenue growth rates in the past year have been disappointing, falling way below the US online ad market's growth rates. Parent company Time Warner has been giving indications lately that it is open to divesting itself of AOL either by selling it whole or in pieces.
"It does seem like the environment, the circumstances, are conspiring to bring these two companies together," said industry analyst Greg Sterling of Sterling Market Intelligence.
The shotgun marriage could end up being more detrimental than beneficial if it creates integration nightmares that derail key initiatives like Yahoo's Open Strategy (Y OS) project and AOL's years-long, painful metamorphosis from a dial-up Internet access provider to an advertising business.
Y OS, announced in April, is a long-term, complex project to open Yahoo services up more broadly to outside developers and to create for end users a single dashboard to manage their Yahoo services and online activities in general.
Yahoo executives have said that Y OS is key in the company's efforts to recover its technology edge and be able to better compete in this era of social computing against rivals like MySpace, Facebook and Google.
"Yahoo is trying to be more like Facebook and MySpace, and clearly Yahoo should have been more like them to begin with," said industry analyst Rob Enderle from Enderle Group. "I'm not sure AOL changes that in any way. Yahoo has always needed to figure out where it wanted to go and its problem has been to stick with the strategy of the moment in order to execute."
Enderle would discourage Yahoo from trying to mesh the AOL products and services right away into the Y OS effort -- doing so would likely disrupt the Y OS workflow, delay its progress and possibly cause it to lose its focus.
"A downside of mergers is that they can be distracting and, depending on what it is you're doing they can slow down your execution in other areas," Enderle said.
Because AOL has been paring down its menu of sites and online services, it now has a considerably smaller roster of products than Yahoo, so the best move would be to keep AOL operating as an isolated, stand-alone group that doesn't interfere with big, ongoing projects like Y OS, he said.