IP Democracy: Giants Realigning for Web 2.0 Era?

As Cynthia noted yesterday, AOL, whose merger with Time Warner marked the peak of Web 1.0 inflated valuations, is now at the center of a potential realignment among industry giants, all of whom are jockeying for competitive advantage in the emerging world of Web 2.0. Its both ironic and significant that AOL, as Om Malik put it in a post advising Time Warner management not to sell off a controlling stake in AOL, is now the “Belle of the Ball.”

Though its too early to speculate how a potential bidding war for a stake in AOL will play out, one possible competitive scenario could feature two “grand alliances” between dominant players from the Internet, broadband-pipe and media sectors:

A Google-AOL-Cable Alliance that would include Google, AOL (including its Singingfish video search engine and the industry’s largest IM service), and Comcast and Time Warner, whose broadband pipes collectively pass roughly 60 million of the nation’s homes and have major investments and longstanding relationships in the content industry.

A Yahoo-Microsoft-Telco Alliance that would include SBC and Verizon, whose local broadband access networks pass roughly the same number of homes as Comcast and Time Warner, and who are aligned with Yahoo (and, in the case of Verizon, also MSN) in the delivery of broadband service, and whose IPTV services will be built on a Microsoft software platform. And, as IPD and others reported the other day, Microsoft and Yahoo have agreed to interconnect their IM services in a direct challenge to AOL’s dominant AIM service.

In addition to these major groupings would be Rupert Murdoch’s News Corp., which has recently been on a buying binge in the Internet space, and which controls a global network of satellite TV systems, including DirecTV in the U.S., along with a broadcast network, local stations and a wide array of content assets.

In today’s NYT, Saul Hansell quotes Jordan Rohan, an analyst with Royal Bank of Canada:

“The enemy of my enemy is my friend,” [Rohan] said. “I don’t think Yahoo fears Microsoft. There is no animosity between them at a corporate level. But both Microsoft and Yahoo are increasingly fearful of Google’s power.”

As Cynthia noted in a post today, an article in today’s WSJ looks at Comcast’s efforts to move from a broadcast to a broadband business model. And, for more on how an investment in AOL could make sense for Comcast, see this piece, penned a few weeks ago by Will Richmond of Broadband Directions.

Hansell suggests that:

Time Warner appears to be in no hurry to complete a deal. It hopes to pick from one of several deals, and the longer the public discussion about rival bidders, the greater the improvement to AOL’s value, people familiar with the company’s strategy say.

Given all the players and interrelated sectors involved, this deal, depending on how it evolves, seems likely to send major ripples (and perhaps a tsunami or two) through virtually every sector of the media, telecom and media industries. And, as previous mergers have done, it could also impact political alignments in Washington, at a time when Congress is considering a rewrite of the 1996 Telecom Act.

Posted by Mitch Shapiro on October 13, 2005 1:03 PM to IP Democracy