News

Google Gives a Cool Billion for AOL Stake

• By Stuart J. Johnston
• 12/21/2005

AOL announced Tuesday that it has thrown its lot in with Google, which is investing $1 billion for a 5 percent interest in the venerable ISP and content provider, apparently putting yet another roadblock in the way of Microsoft’s aggressive plans in the entire search engine arena.

The move makes Google the only shareholder in AOL other than Time Warner. “Time Warner will retain management control and full strategic flexibility over AOL, while Google will have certain customary minority shareholder rights, including those associated with any future sale or public offering of AOL,” said a statement released by the Dulles, Va.-based AOL.

So what does a billion dollars buy these days? Under the terms of the deal, Google will continue to provide search technology to AOL for one thing, thus freezing Microsoft out of that channel.

On a more detailed level, however, it also involves the two companies in creating an AOL Marketplace by “white labeling” Google's advertising technology, thus letting AOL sell search advertising directly to advertisers on AOL-owned properties, AOL’s statement said.

Also part of the agreement: expanding the use of display advertising throughout Google’s properties and making AOL content more easily accessible to Google’s Web crawlers. Furthermore, the two companies will collaborate on video search and on letting Google Talk and AIM instant messaging users communicate with each other.

“[This] agreement leverages technologies from both companies to connect Google users worldwide to a wealth of new content,” Eric Schmidt, CEO of Mountain View, Calif.-based Google, said in a statement. AOL’s branded products include the AOL service and Web site, as well as AIM, MapQuest, Moviefone, Netscape, CompuServe and ICQ services.

“The AOL-Google deal shows that Microsoft faces plenty of competition and long-term dominance is by no means assured,” commented Jupiter Research senior analyst Joe Wilcox on his blog. “No doubt, the AOL-Google deal is a blow to Microsoft. A Microsoft deal could have snatched AOL from Google as the default engine.”