Google, AOL Cement Advertising Partnership
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Beating out rivals that reportedly included Microsoft and Yahoo!, Google took a stake in Internet service provider AOL. Both companies have a lot to gain from the deal, but it does have its down side -- and AOL may yet regret the move. Keep reading to find out more.
The deal itself was reportedly a year in the making, though the press leaked details about rival suitors in the lead-up to the late December 2005 announcement. It was a coup for Google, and left Microsoft out in the cold. It made Carl Icahn and the group of investors he heads up apoplectic. And it caused analysts of all stripes to display their “armchair quarterbacking” skills as they talked about what the deal meant and whether it was really the best one possible for all involved.
The basics of the agreement between Google and Time Warner are relatively simple. Google will invest $1 billion for a five percent stake in America Online. Time Warner retains 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. (I’ll talk more about that point later). Though the deal values AOL at $20 billion, which sounds a little high to some analysts, the point isn’t the money so much as the other aspects of the partnership.
The deal expands an agreement the two companies made about three years ago. In addition to the $1 billion from Google, AOL gets a $300 million credit that it can use to buy keyword-based ads from Google, a valuable commodity indeed. AOL should be able to monetize that credit nicely, since another part of the deal allows it to sell all types of ads, including search, banner, and display, across Google’s network – including on Google’s own websites.
But Google isn’t the only one making concessions in this deal. AOL’s notoriously popular – and notoriously closed to the competition – Instant Messenger will interoperate with the search engine giant’s four-month-old Google Talk. There is a condition here, though a small one: Google Talk users need to sign up for a free AIM screen name if they want to be able to IM users of AIM. This point is particularly interesting, given that Microsoft and Yahoo!, who were also courting a deal with AOL, recently reached an agreement to allow their IM clients to interoperate.
Another aspect of the deal involves “Making AOL content more accessible to Google web crawlers,” according to the Google press release. This particular point has stirred a bit of controversy among Google watchers. Some analysts even suggest that it might offer an indirect opening for Microsoft in the search engine advertising marketplace.
Next: Why They’re Doing the Deal >>
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