Four Lessons From MSN/AOL Talks

It sounds like the rumored Microsoft (MSFT - commentary - Cramer's Take)-Time Warner (TWX - commentary - Cramer's Take) merging of their Internet entities, MSN and AOL, is coming closer to being a reality. I've already reviewed the ramifications of such a deal.

But another thread running through this saga of giants is worth plucking out: Executives on both sides seem to be applying some of the business lessons they've learned from their prior dealings together.

Whether these lessons result in successful talks with this particular deal, and then whether a consummated merger leads to world domination, remain to be seen. But you may be able to profit sooner from what they had to learn the hard way.

For me, it's sometimes hard to remove the business from the personal. What impresses me most about the talks involving is how quickly they've gone beyond the personal when attempting to establish what they believe will be the next leader in searches, portals and online advertising.

That's because Microsoft and AOL hate each other. At least, I thought they did. Or maybe they love each other. It's unclear, given their history:

Hate: When Bill Gates and Steve Case first sat down in 1993, the very first time they considered a merger, Bill Gates essentially said, "We're either going to buy you or bury you." AOL didn't sell.

Love: When James Barksdale worked out his deal that Netscape would be the browser for AOL's service in 1996, he forgot to write the word "exclusive" in the contract. Two days later, AOL announced that Microsoft's Internet Explorer would become its official browser.

Hate: The great thing about the Internet world is that it's still an emerging market in every sense of the word. New regulations come out every day, prices gyrate wildly, and markets and new alliances are formed and broken on an hourly basis. AOL's love/hate relationship with Netscape turned into marriage when AOL bought Netscape for $4 billion in 1999. By this time, Netscape was suing Microsoft for all sorts of issues: monopolies, patents, etc.

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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