aol-yahoo1Mashable: The AOL-Yahoo rumors are heating up once again. This time, they involve splitting up the AOL empire into two divisions before engaging in a merger of the two Internet companies.

AOL has two main components: A content and display advertising business, and its longstanding dial-up business. In the past few years, AOL has focused on developing and expanding its advertising arm, its web portal and its media properties (e.g. Engadget and TechCrunch).

However, the main revenue driver for the company is still its legacy dial-up business, which turned the company into one of technology’s most powerful companies during the 1990s. Since then, broadband Internet has eaten away at AOL’s dial-up business, but the company still has millions of paying customers that are feeding it revenue.

According to Reuters, AOL is considering splitting the company up into a dial-up business and a content/advertising business. The dial-up business would be sold to an Internet provider like Earthlink, while its content business would merge with Yahoo. The deal would be dependent on interest from potential buyers of its dial-up business along with cooperation from Yahoo.

In October, it was rumored that AOL was considering acquiring Yahoo, despite its smaller size, through the help of several venture capital firms that would have financed the deal. That option has since fallen by the wayside, but this renewed interest is apparently a derivative of those October discussions.

Yahoo has not been contacted about a possible merger, just as it was not contacted about a possible acquisition by AOL.


What the AOL-Yahoo Rumors Really Mean

The AOL-Yahoo rumors keep popping up, despite all of these discussions being in a (very) exploratory stage. Anything involving a merger of two struggling Internet companies is sure to generate some attention, which is why the press is eating this up.

Here’s what’s most likely going on. First, AOL wants Yahoo, and it has wanted Yahoo for years. AOL nearly put a bid in for Yahoo in 2008 after Microsoft tried to take over the company for its search business. There are a lot of potential content and advertising synergies between the two companies that could reduce a lot of redundancies, which is why AOL has always been so interested in Yahoo.

That’s why it doesn’t surprise us that AOL has been internally discussing its options to either acquire or merge with the Sunnyvale-based company. It’s probably thrown around dozens of ideas in brainstorming sessions and private meetings at all levels of the company. AOL’s original idea (to acquire Yahoo with the help of venture capital firms) was simply preposterous, though: Yahoo is nearly eight times larger than AOL based on market capitalization. Pulling that off would have been very difficult, to say the least.

Breaking up AOL and then merging its content and advertising business with Yahoo is one of the few ideas that actually makes sense, though. In my opinion, AOL and Yahoo are eventually going to combine their resources — there are simply too many benefits and synergies for the two to ignore the potential of a combined entity.

It’s more likely though that Yahoo will be the one doing the acquiring, and not the other way around. Now the question is whether Yahoo is or ever was interested in a merger in the first place.