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Is the Microsoft-Time Warner truce a big deal?

Declan McCullagh, CNET News.com CNET News

Published: 03 Jun 2003 14:15 BST

Is the recent truce between Microsoft and AOL Time Warner really that meaningful?

Listening to many commentators laud the settlement, with which the companies pledged to work more closely on instant messaging interoperability and Microsoft wrote AOL a cheque for $750m, one might think this is the biggest news since the invention of the World Wide Web.

Analysts swooned. The Seattle Times predicted that the "settlement could once again transform the industry -- and potentially change the way consumers buy music, movies and television service." The New York Times believes that the deal "reflects a fundamental change in direction for both companies."

Well, it might. But it's pretty unlikely. Remember the excessive bloviation that accompanied the January 2000 announcement that AOL was buying Time Warner? Analysts confidently predicted that that flop of a deal would change the business world as we knew it.

Bear Stearns financial analyst Scott Ehrens said at the time: "Since we view it as the premier company in one of the hottest sectors in the market, we feel that AOL Time Warner could garner an unprecedented premium to its peers and therefore continue to recommend purchase of the stock to long term investors." Phil Leigh, an analyst at Raymond James, said with a straight face: "It is probably the most significant development in the Internet business world to date." Gerald Levin, Time Warner's chairman and chief executive, told reporters at a news conference: "What you'll see early on and very quickly are a lot of things AOL can do together with new forms of functionality that we have not seen in the broadband cable industry."

Like kissing hundreds of billions of dollars of value goodbye, perhaps? AOL was trading at around $90 at its peak, just before the January 2000 announcement. Now it's plummeted to a disheartening $15 -- with something like $300bn vanishing into thin air. Sure, that changed the business world as we knew it -- though not exactly in the way that Steve Case and Gerald Levin had intended.