AOL offloads ICQ to Russian investors

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AOL is to sell its ICQ instant messaging service to Russian venture capital firm Digital Sky Technologies (DST) for $187.5 million – less than half what it bought ICQ for in 1998.

The move comes as the troubled internet giant revealed a 58 per cent decline in first quarter net profit yesterday, and a 23 per cent drop in revenue year-on-year.

The chat service joins a growing portfolio of technology interests DST holds a stake in. It paid $200 million for around two per cent of Facebook last year, and has also invested $180 million in Zynga, the developer behind the highly popular social network gaming title FarmVille.

AOL snapped up Israeli-based ICQ for $407 million back in 1998. At the time ICQ was one of the hottest instant messaging properties around, despite having started as a pet project for three high-school friends just two years previously and having yet to earn a single penny of revenue.

However, with AOL's help the chat service flourished, and at its peak had a user base of around 100 million users. But as rival chat services – particularly from Yahoo and Microsoft – started maturing, ICQ's numbers dwindled. It still attracts around 32 million unique users every month, and remains popular in central and eastern Europe.

Indeed its strength in those markets, particularly in Russia where it is the most popular chat service, is what attracted DST in the first place. “The purchase of ICQ is a strategic step in the development of DST's business in Russia and Eastern Europe,” the group's founder, Yury Milner, said in a statement.

For AOL, the sale of ICQ comes as chief executive Tim Armstrong, who was appointed a year ago, continues to try and shift unprofitable elements of the company's business and instead focus on reigniting ad sales growth, particularly in the US.

“AOL will continue working to restructure our business, and we are very glad to find a worthy home for ICQ in DST,” Armstrong said of the deal.

The sale is expected to close in the third quarter, but could be extended to April 2011 if necessary, with either side able to back out without penalty, according to the regulatory filing.

AOL is also seeking to offload social network Bebo, which it bought for $850 million two years ago. At the time, AOL was looking to incorporate ICQ and its own instant messaging service AIM into Bebo to boost its appeal. A final decision on whether to sell Bebo or simply shut it down will be made next month.

Armstrong blamed declining advertising sales for AOL's meagre first quarter net profit of $34.7 million, down from $82.7 million a year earlier. Advertising sales fell 19 per cent, with AOL warning that it didn't expect to see any growth in US display advertising until at least the first quarter of 2011, while search advertising would continue to decline for the next few years.

AOL detached from media giant Time Warner in December, some nine years after a $124 billion merger that saw both sides post record losses.

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