MSAOL

What's with the New York Post passing on merger rumors?  Yesterday, the news was that Microsoft (NASD: MSFT) might be interested in investing in, or buying a stake in Time Warner's (NYSE: TWX) AOL division.  Perhaps Microsoft is just trying to draw more eyeballs to its MSN division.  This would make sense to proponents of Metcalfe's law which states that the value of a network is related to the square of the number of users.  I.E., an increase in user base will give a large increase in value.  Legg Mason's Bill Miller is a believer in this, and supposedly uses it to value investments.

Or perhaps it's a shrewder, more Redmaneque strike against Google (NASD: GOOG). PaidContent.org has the numbers:

Just thinking this through: It seems that this is a offensive flanking move by Microsoft, intended to hit Google where it hurts most: revenues from partners.

From Google's latest 10-Q quarterly filing with SEC: "We rely on our Google Network members for a significant portion of our revenues, and we benefit from our association with them. The loss of these members could adversely affect our business...advertising and other fees generated from one Google Network member, America Online, Inc., primarily through our AdSense program, accounted for approximately 12% and 11% of our revenues in 2004 and in the six months ended June 30, 2005, respectively." And the irony: AOL sold its stake in Google recently for close to a $1 billion.

From its second offering SEC filing: "We expect that Microsoft will increasingly use its financial and engineering resources to compete with us....They can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and web sites. Microsoft and Yahoo also may have a greater ability to attract and retain users than we do because they operate Internet portals with a broad range of content products and services."

At this point the rumor is speculation, but it seems that it's being taken seriously, and the battle lines are still being drawn.