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Oct 8, 2008

Yahoo-AOL: An integration nightmare on deck

Ed: We've noted the execution challenges for Yahoo and AOL. The combination creates a nightware that is multiplicatively worse. 400 engineers at Yahoo combined with equal numbers from AOL - like the elections - it's a cacophony of voices without clear leadership. Dangerous.

Yahoo-AOL: An integration nightmare on deck

Posted by Larry Dignan @ 5:25 am

The Yahoo and AOL merger talks are proceeding at pace and now the bigwigs are conducting due diligence. In other words, a deal is quite possible, but the integration work is going to be ugly.

Boomtown’s Kara Swisher reports:

Now, sources tell me, the circle of executives at both companies interfacing with each other has been widened, for purposes of due diligence. That includes Yahoo CEO Jerry Yang, who is indeed in New York this week–where AOL parent, Time Warner, is located–to meet once again with its CEO Jeff Bewkes and see if they can actually complete the merger.

Swisher then has a strong analysis on the management teams and how they might fit together. Henry Blodget tosses in the financial analysis(assuming Yahoo shares can hold it together long enough to do a deal). But once the headlines are dry and all the moving parts are dissected the real work begins. How are these assets and information systems going to be combined?

Something tells me Michael Krigsman at IT failures is going to be busy.

Why the pessimism?

Yahoo in April outlined its open strategy, which is about collapsing its internal data silos as much as it is about becoming a platform. Simply put, Yahoo has its share of applications running amok since its various business units used to run more or less independently.

Now toss in AOL’s assets. AOL was built via acquisition and each company acquired–Bebo, Advertising.com, Quigo etc.–all had their own information systems. Now take that hodge-podge and connect it at the hip to Time Warner’s systems. Talk about legacy apps.

Once you map the various IT systems and their connections at AOL and Yahoo you’ll have some ugly whiteboard art.

But all of that mess is behind the scenes. You can pretend that rat’s nest doesn’t exist–at least for a while.

What about the advertising systems?

  • Yahoo brings RightMedia, APT, BlueLithium and Panama.
  • AOL brings Platform-A and its subsidiaries– TACODA LLC, Quigo Technologies, ADTECH AG, Third Screen Media, Advertising.com and Perfiliate Limited.

Adding those ad networks together will get share, but can Yahoo-AOL integrate them in a way that works for advertisers?

Simply put, the Microsoft-Yahoo integration looked cleaner.

The ad networks and internal systems are just two of the most obvious pain points. The actual management teams that will carry out the integration are another issue (many projects fail due to inept management instead of technology).

A Yahoo-AOL combination is going to lead to a management bakeoff internally. And unfortunately, Yahoo and AOL are used to it. How many reorgs have occurred in the last two years at both places?

Toss in the fact that neither AOL or Yahoo are exactly running to the altar. They are being pushed together. Yahoo is trying to keep its stock price from heading to single digits and Time Warner just wants to unload AOL to anyone it can.

Add it up and you don’t have the makings for a smooth integration process

Larry DignanLarry Dignan is Editor in Chief of ZDNet and Editorial Director of ZDNet sister site TechRepublic. See his full profile and disclosure of his industry affiliations.

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