Some megamergers, like Disney-Pixar, seem made in heaven, while others, like Sears-Kmart, turn out to be hellishly stupid. If history is any guide, the recently announced merger of Verizon will fall into the latter category. Here's why:
1. They have wildly disparate corporate cultures.
The most valuable pieces of AOL (like Huffington Post, TechCrunch) have free-wheeling, flat-structured, informal cultures, mostly peopled by millennials who've lived and breathed the Web since they were kids.
By contrast, Verizon has an industrial age culture consisting of 1) Boomer executives who wear three-piece suits and give buzzword-rich Powerpoints, and 2) an employee base of a blue collar workers, salespeople, service techs and other assorted peons.
A merger is like a marriage; to be successful, the two parties must be compatible and hold similar values. The Verizon-AOL merger is the equivalent of marrying Amy Schumer to Mitch McConnell. It's doomed before the nuptials.
2. They treat customers completely different.
AOL, like all Web content firms, is exquisitely sensitive to and connected with its customers, the people who read the content. Writers and editors are constantly aware of what readers want (based on traffic) and when possible engage interactively.
Verizon, like all telephone and cable companies, sees customers only in terms of the revenue they produce. They consider customer service an expense to be avoided or an opportunity to up-sell an additional service.
How a company's execs envision customer relationships permeates everything inside that company. When Verizon and AOL execs get together to discuss basic customer issues, like loyalty and satisfaction, they'll be talking entirely different languages.
3. They have incompatible business models.
AOL earns revenue by selling advertising that runs aside content that its customers want to read. The selling cycle ("should I read this or not?") takes place in milliseconds.
Verizon earns revenue by locking customers into contracts by subsidizing hardware purchases. The sales cycle ("who has the best deal?") takes place over two year intervals.
These business models aren't just different, they're opposites. If AOL tried to lock readers into a long term contract, readership would disappear. If Verizon gave customers the option to switch carriers every day, they'd go out of business.
These two business models do not create "synergy" (although I'll bet that term has been thrown around a lot). They're more like oil and water; they just don't mix.
4. Verizon execs will win the turf war.
Turf wars are an inevitable result of any corporate merger. As in all wars, the winner is usually the army that has the most soldiers. Verizon employs 177,300 and AOL a measly 5,600. So just in terms of numbers, AOL is destined to lose.
Many Verizon's execs will be corporate politicians who see the merger as an opportunity to expand an empire or revive a flagging career. They will descend upon AOL like a plague of vampires.
AOL's executive team will be ousted and replaced by execs who have no idea how to manage AOL employees (see #1 above), have a completely different idea of customer service (see #2 above) and don't understand AOL's business model (see #3 above).
5. AOL's talent pool will quickly jump ship.
As the inevitable scenario (#4 above) plays itself out, the creative people and IT geniuses working for AOL will sit through one or two meetings with the empty suits from Verizon and conclude that, while it was nice while it lasted, it's time to leave.
Resumes will hit the street and the talent that makes AOL viable will quickly find other jobs, because their skill sets are in high demand. The only AOL employees who remain will be the marginal contributors who are mostly dead weight.
Because the real value of AOL lies in its people and their ability to read the pulse of the online world, the mass exodus of talent will leave AOL a hollow shell destined to be sold off a fire-sale price.
In other words, this merger will play out almost exactly the way the AOL-Time Warner merger played itself out. In that disaster, AOL managed against all odds to crawl from the wreckage and stagger back to its feet.
I wouldn't bet on that happening again, though.