Quite a few people have written that Microsoft’s acquisition of Yahoo! would be equivalent to the merger of Time Warner with AOL in 2000 – that is, a disaster. Certainly there are some parallels – the size of the deal is one of the largest since that AOL/Time Warner one (though nowhere near its $160 billion level – but that was an all-stock deal), and it would essentially be one giant money-making machine joining forces with a powerful, though much smaller name that was once nearly synonymous with the Internet.

However while AOL was still very much in power at the time of its merger, Yahoo! has been on the downfall the past couple years with Google rising up to take its place. It was almost right after the Time Warner/AOL merger that AOL started its historic downfall.

So it provides a kind of nice symmetry now that Yahoo! is said to be talking with AOL about a possible merger that could fend off the Microsoft bid. Can the previous cautionary tale on Internet mega-mergers save Yahoo! from being the next one?

The two have talked before, in 2006 about a possible merger, but neither side could agree on a price. However both companies are in different, desperate situations now. Time Warner has seemingly been trying forever to figure out some way to back away from AOL, while Yahoo needs to move fast before Microsoft takes its offer right to the company’s shareholders – or worse, makes a move to put its own board in place.

Another key point to this deal is only briefly mentioned in the Times’ piece. Google owns 5% of AOL – they actually outmaneuvered none other that Yahoo to get it in 2005, assuring their search would be used with AOL. Now Google is trying like crazy to help save Yahoo from Microsoft – you think they didn’t call that company they own a share of to come up with a scenario? Hell, they could be the main players working behind the scenes on this.

While I have doubts as to whether an AOL/Yahoo merger would actually do anything to help either company long term (Allen Stern lays out a counter scenario), short term it could certainly make for a viable alternative to the Microsoft deal. But is it wise to risk the future of your company just to avoid being bought by a non-preferable buyer? We might get to see it play out in front of our eyes.