Microsoft bought 800 patents from AOL this morning in a deal widely regarded as a benefit to both companies.

AOL isn’t a company we’ve talked about much in this blog because frankly, it’s not a company that gets talked about a lot any more in daily technology news. Having said that, the company has some unique leverage that is proving its worth, particularly to Microsoft. This morning AOL announced that it would be selling 800 patents to Microsoft for just over $1 billion USD.


The details specify that Microsoft will get 800 of AOL’s patents, as well as related patent applications, and Microsoft will get a non-exclusive license to the patents that AOL keeps. Which, after all is said and done, AOL will have about 300 patents and patent applications. Those 300 are generally related to advertising and search functions.

It’s universally acknowledged that Microsoft is doing this to bolster its attack on Google’s chunk of the Internet market. Not only can Microsoft now use the patented technologies and information that it just purchased, but it can generate some more revenue to throw at the company’s Google problem by licensing out these new patents to other companies.

Analysts are also agreeing that $1 billion USD is a bargain for Microsoft. The company has made no secret of its intent to try and dominate the web by buying up other web companies. Most recently, talks were heated and long about Microsoft buying Yahoo (but nothing ended up happening). Instead of buying AOL, Microsoft saves several billion dollars by simply buying the bread-and-butter of the company: its patents.

But, keep in mind that this wasn’t just Microsoft swooping in and bullying patents out of AOL’s hands. AOL has been looking to get some cash for months and decided selling its patents was the best idea. The company had even hired a third party investment banking firm to sell its 800 patents to whoever would offer the most cold, hard cash.

In AOL’s defense, the company has been slowing crawling its way out of obscurity and into a meaningful role on the web. For example, the company bought the Huffington Post and Mapquest. It’s come a long way from its dial-up services.

Microsoft may have its eyes locked on the online map market. Google has recently lost some big name Maps users like Wikipedia, Apple, and Foursquare. These companies balked at the increased price of use for the Google Maps product and have instead sided with OpenStreetMap, which is open source. And which company backs OpenStreetMap? None other than Mapquest. The company holds 239 patents and reports are confident that some of those are bundled in with the 800 that Microsoft contracted to buy this morning from AOL.

Despite this Herculean effort to remain relevant, AOL shares dropped eight percent last year, and twenty percent total in the past five years. One investment group felt concerned enough about the trend of AOL’s stock to try and interject five people onto the company board they believed could do a better job of raising the value of the company. To try and address those investor concerns, AOL has announced that the majority of the money from the sale of its patent portfolio will go back to shareholders. However, at news of this morning’s announcement (and at the time of publishing this article), AOL shares are up just over 45%.

The bottom line is that AOL and Microsoft have come up with this deal, but nothing is expected to be officially wrapped up until the end of the year. Additionally, it remains to be seen what AOL can do with this chunk of change, and if the company can pull itself into the Internet limelight to make some more cash.

If you’re interested in reading more about Microsoft’s latest endeavors, check out our blog post about how the company has recently fought on the front lines against botnet malware servers.