AOL's rebuilding effort continues, sells long-running IM service ICQ at a loss

Russian Internet investment firm Digital Sky Technologies will be acquiring ICQ from AOL Inc. for $187.5 million, the companies announced today.

Former Internet service provider AOL purchased ICQ creators Mirabilis Ltd. for $407 million in 1998. At the time, the free ICQ chat client was one of the most popular pieces of free software available.

Just a month prior to AOL's acquisition of ICQ, New York Times writer Michelle Slatalla wrote, "The program transforms Net surfing from an essentially solitary endeavor into a social activity. One moment, I was sitting alone in my dark office, typing away at 2 a.m. Then ICQ informed me that one of my brothers...had come on line."

ICQ and its ilk of instant messaging clients were connecting people long before there were social networks that bind us to every distant family member and random acquaintance we've ever made. At the time it was still novel, and AOL's purchase of Mirabilis constituted the largest foreign acquisition of an Israeli software company of all time.

But twelve years and a generation of Web users later, standalone instant messaging clients are facing the growing challenge presented by clientless platforms such as those found in Facebook and Gmail and services such as Twitter, which are extremely popular on mobile devices. Reportlinker ties the growth of mobile social networking directly with the growth of mobile instant messaging.

ComScore's February 2010 Media Matrix said ICQ had more than 32 million unique monthly visitors. Twitter, by comparison, now has 180 million unique visitors per month.

"As AOL continues its turnaround effort, we're fortunate to find a great home for ICQ with DST," Tim Armstrong, Chairman and Chief Executive Officer of AOL said in a statement today. "DST is a leading innovator in the Internet investment space and has a significant presence in the markets where ICQ is strong."

The final selling price could actually be a low-ball for AOL. It was rumored that the company was actually seeking between $200-$250 million for ICQ at the end of last year. In AOL's earnings report today, the company said that its earnings fell by 59% in the first quarter against declining advertising and subscription rates.

AOL is still in a period of recovery from its spin-off from Time Warner Inc. and is attempting to streamline its business into one driven almost entirely by advertising. At the end of 2009, a filing with the US Securities and Exchange Commission showed that this split will shrink AOL's workforce by 33%, and in February, the company sold buy.at for approximately $16.4 million in cash. Currently, it is seeking "strategic alternatives for Bebo, which could include a sale or shutdown of Bebo in 2010." AOL purchased the social network just two years ago.