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Another technology boom, another category-busting acquisition involving AOL. But in most other respects, the deal could hardly be more different.

It is not just a question of numbers. In 2000, when AOL used its bubble-inflated stock to bid $160bn for media giant Time Warner, Wall Street valued the internet company at a jaw-dropping 35 times its revenues and 220 times earnings.

With the shoe now on the other foot and AOL a pale shadow of its former self, the multiples of 1.8 times revenue and 24 times projected earnings being paid by Verizon make the $4.4bn price for this deal barely a rounding error. The price is less than half of the US telecoms group’s operating cash flow from just the latest quarter. But it puts an end to one of the defining stories of the Internet 1.0 era.

Another profound difference is the shape-shifting that AOL has gone through in a decade and a half. Back in 2000, it was an internet communications company based on a subscription business model, attempting to buy its way into the media world. The dreamers who hatched the seminal corporate disaster of the dotcom era imagined they could breathe new life into old media by pumping it through AOL’s interactive network.

Since then, AOL has itself turned into a media company, of sorts: it is now itself being engulfed by a communications company. True, it is still disconcertingly dependent on its shrinking, 1990s-era dial-up connection business, which accounts for a nearly a third of revenues and the bulk of operating income. This time, though, it is AOL’s advertising platforms and the hopes for a boom in digital video that lie behind the deal — even if it means Verizon will also have to swallow a constellation of marginal web properties in the bargain.

But there is at least one thing that has not changed from one internet boom to the next. The dream of a converged content and communications industry is more than two decades old — and the competition has come a long way.

Last month, Google announced a mobile communications service of its own in the US and is already several years into building high-speed consumer broadband networks. With YouTube, it accounts for the lion’s share of video distributed on the internet. And the search company boasts a market-leading 31 per cent share of the world’s digital advertising, according to research firm eMarketer — compared with less than 1 per cent for AOL.

There may be logic to Verizon’s belated response. But in contrast to the monumental disaster of the Time Warner deal, its purchase of AOL is at risk of looking like too little, too late.

Copyright The Financial Times Limited 2017. All rights reserved.
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