Why AOL & Microsoft Stocks Will Sink

I believe that being successful in the stock market is much more than trying to predict the next trend.

I believe in finding a solid business with a core group of people running the company who have been there a while and have a vested interest in the future success of the business.

I believe that finding a company that pays a dividend to its shareholders and who has continued to pay that dividend for a long period of time is perfect for a buy and hold situation. Even better if they have continued to raise the dividend!

That being said, I'm going to make a bit of a prediction here.

I'm betting that Microsoft's share value will drop because of a botched search engine foray.

I'm also betting that once Time Warner spins off AOL, that company will flop as well.

Let's start with Microsoft.

It's no secret that Microsoft has been lagging behind Google and Yahoo for sometime in the search engine market.

They're also a distant third in online ad revenue behind Google and Yahoo.

Microsoft still has its nearly ubiquitous operating systems, although Vista was not nearly as well received as they would have liked.

But the future of computing is online, and Microsoft knows that. They've been trying to purchase Yahoo, or at least parts of Yahoo for a while now. A partnership between the two companies is probably the only way for Microsoft to have a chance at Google.

Online operating systems are already here, and cloud computing and software as a service (SaaS) are rapidly growing businesses. Microsoft wants to secure its place online, so what better way than to...do what they've already done.

Microsoft is gearing up for its big release of a new "decision engine" they're calling Bing. While it employs some new technology from Microsoft's purchase of Powerset, it mostly looks like a fancy Live Search.

They made the announcement and guess what happened next...

Google made an announcement of their own.

Google released information about Google Wave, an online tool for personal communication and collaboration on the web. It looks truly amazing, and I'm anxious for the opportunity to play around with it. It's a brand new HTML5 application, and it's open source! Google wants developers from around the world to pitch in and make this thing incredible. In fact, I'm so excited...

Oh wait, wasn't Microsoft saying something?

Google has gotten VERY good at playing their trump card at the perfect moment.

Sure, Microsoft has a new "decision engine" that will be available June 3, but look what GOOGLE is doing.

One of the most telling aspects of Microsoft's impending flop is the lukewarm response the Twitter community gave it.

Twitter has a list of trending topics that are hot throughout the community at any given moment. The day Microsoft made it's big announcement, "Bing" only reached #3 from what I saw, and by the end of the day, it was at the bottom of the list.

Microsoft is allegedly putting a lot of advertising money into promoting Bing. Something to the tune of $80 million, from what I've read.

That's a lot of money to throw at what looks to be a slightly jazzed up version of Live Search.

Microsoft isn't going to be competitive in the search engine and online advertising revenue market with Bing, and we're going to see that reflected in the share price of Microsoft(MSFT).

Now on to AOL.

Let's be clear here...AOL is not currently a stand-alone company nor can you purchase shares of just AOL.

Time Warner and AOL formed a partnership in 2001 and it has largely been regarded as one of the bigger corporate blunders in recent times.

Today it was announced that AOL will be spun off from Time Warner, and AOL will be left to pursue it's own business strategies.

That's like cutting off a diseased leg and throwing it to the wolves - telling your leg it can find its way to a new home.

AOL revenue has been lagging for years, and it will not survive for long by itself. Internet subscribers at one point provided $528 million per month in cash flow to AOL. That number is now 76 percent lower.

For the company to stand any real chance in the online ad revenue, or any other online business venture, AOL will need to be creative, and quickly.

Remember Bebo? It tugs a bit at my memory, but I'm sure AOL remembers it clearly.

That was AOL's attempted foray into the social media realm last year. It only cost them $850 million to find out that Bebo was NOT the next hot site.

They probably could have found that out by asking the collective teenage children of the company employees.

It's unclear right now how the corporate structure will be at AOL. I suspect it will be a public company, but the spin-off won't happen until the end of the year, Time Warner says.

If you do have the opportunity to buy AOL stock, don't. While Microsoft can recover from a blunder in the search engine business, AOL will not tread water for very long without thinking like MacGuyver.