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Can AOL and Yahoo Come Back to Life?

When Web companies stumble, as Yahoo and AOL have, they almost never recover

Shortly after the news broke that Yahoo! had ousted Chief Executive Carol Bartz on Sept. 6, Tim Armstrong’s phone began ringing. According to people with knowledge of the calls who were not authorized to speak on the record, the AOL CEO spoke several times that day with bankers who wanted to reopen talks begun in 2010 about merging the two companies under Armstrong’s leadership. The logic: By combining the companies’ content and audience, the former Google executive could extract better ad rates and build a more profitable business.

It’s a terrific idea—if you’re Armstrong or a fee-seeking investment banker. But the idea of merging these struggling Internet icons has become a tech-industry punchline. (“Two dogs don’t make a right,” cracked TechCrunch’s Erick Schonfeld.) It’s unlikely that any kind of McKinsey-style synergies will help reanimate AOL or Yahoo. They’ve joined the ranks of the Web’s walking dead—not yet in the ground, but hearts barely beating—alongside other former stars such as Myspace, Digg, and RealNetworks. “It’s very hard to see either of those companies becoming sustainable growth companies again,” says Mark Mahaney, a leading Internet stock analyst with Citigroup. AOL and Yahoo declined to comment.