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Will the Yahoo-AOL Merger Work or Not?

Sep 28, 2014 08:03 PM EDT | By Eunice Tagalog
Yahoo, AOL, bing, Yahoo AOL merger, Starboard

After Starboard's suggestion of a merger between Internet veterans Yahoo and AOL between Investors are wondering whether the team-up would work.

Would it be a disaster of putting two antique online companies that are struggling to adapt by their own selves, or the making of one of the best team-up in the Internet?

Recently, Yahoo's major shareholder, Starboard Value sent a letter to Yahoo's CEO Marissa Mayer on Fri. pushing the Internet giant to make actions to make its shareholders get the bang for their buck and also to team-up with old-time online company AOL.

Partnering with AOL would be a double-edged sword-Yahoo could make use of AOL's advertising technology to penetrate the online ad market where Google and Facebook are leading the race.

Google gets one-third of the world's $140 billion ad spending this year while Facebook takes 8 percent.

Meanwhile, Yahoo and AOL only share 2.5 percent and 1 percent, respectively.

"Neither company is a leader in ad dollars, and other than cost savings, there is little to gain by combining them," according to Erik Gordon, a professor at the Ross School of Business at the University of Michigan.

Gordon also reiterated that the Managers of both companies would need a period of adjustment to direct staff and to blend their systems together, which would take a lot of precious time that can be used to beat the competition.

On the other hand, analysts say that the team-up would help both companies adapt newer, automated methods of advertising and programming methods.

In 2013, AOL acquired electronic video ad platform The acquisition brought in 75 percent of AOL's total revenue last quarter.

The technology could bolster Yahoo's recent attempts to put out more online video programming.

AOL is also doing a good job in ad pricing than Yahoo, according to JMP Securities analyst Ronald Josey.

"AOL is specifically doing better in their core business and Yahoo has room for improvement for sure," Josey said.

The merger would make Yahoo and AOL rank a solid third in the display ad market behind frontrunners Google and Facebook, according to Pivotal Research Group Analyst Brian Wieser.

The merger, however, remains yet to reap benefits as Yahoo is still working on its ad prices and deal with a previous transaction with Microsoft Corp that created search engine Bing which is still overshadowed by Google.

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