Forget about Microhoo, the next merger could be YAOLhoo (Yahoo! and AOL) if sources close to Reuters are to be believed.

The rumor mill is buzzing with news that AOL Inc and additional private-equity firms are discussing a merger with Yahoo! As a part of the merger AOL will be splitting up its two core components namely the content & display advertising business to be merged with Yahoo. While its subscription dial-up internet service will be sold off to another internet company such as Earthlink.

While AOL has long been known to earn maximum revenue from its dial up business, it has also been working recently on its content and display advertising business. This could be one of the major driving forces behind their interest in this merger with Yahoo who has a bigger advertising platform than AOL. Yahoo! is, after all, nearly 8 times the size of AOL in terms of capitalization.

Some of you may recall that AOL attempted to merge with Yahoo! back in 2008, unsuccessfully. So, whether or not this deal will see the light of the day is still to be confirmed by both companies. Reuters says that AOL is still exploring the various aspects of this deal before approaching Yahoo officially.

While both these companies attract large numbers of users to their pages, their advertising businesses will continue to face steep competition from a range of websites (Google mainly) in the online marketing sector. If the merger is successful I don’t believe it will have great impact on the online marketing/advertising landscape. The two companies combined still wont be able to compete with advertising giant, Google.

Mashable has another theory on the merger which think is more likely:

Yahoo is nearly eight times larger than AOL based on market capitalization. Pulling that off would have been very difficult, to say the least.

It’s more likely though that Yahoo will be the one doing the acquiring, and not the other way around. Now the question is whether Yahoo is or ever was interested in a merger in the first place.

So, is this merger rumor simply AOL’s way of putting the idea in Yahoo’s head? We will have to wait and see.

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