AOL Chief Executive Tim Armstrong this week said the company is beginning talks on a new search deal, but a speculative report at Business Insider suggests that the company could end up selling itself outright to Microsoft.

Although I have no knowledge that’s where things are headed, it certainly seems logical. Microsoft is looking to gain search share, and AOL is one of the biggest chunks available. Meanwhile, some of its display ad and Web presences seem as if they could mesh with Redmond’s, while at the same time perhaps creating enough redundancy for some cost savings.

Plus, Microsoft’s pockets are deep enough to afford such a deal, should it decide that it wants to. The company at one time was willing to pay north of $30 a share for Yahoo, though that company brought with it far more search share than would be acquired with AOL.

Google is obviously the other contender, though it’s probably more interested in a renewal of a search deal than in AOL’s myriad other Internet assets, including mail, instant-messaging networks, and various content sites.

In above video of Armstrong speaking at this week’s D: All Things Digital conference.

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