Google, AOL Cement Advertising Partnership - Why They’re Doing the Deal
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We can start to understand why these two companies are making this agreement by looking at the numbers. During the first nine months of 2005, AOL accounted for $429 million of Google’s revenue – about ten percent. Even after giving AOL its percentage of those advertising dollars, Google kept $63 million by some estimates, and that’s nothing to sneeze at.
Of course, that’s not the full story, though it often seems to come back to that. In addition to its share of the advertising revenues, AOL and Time Warner have plenty of reasons for wanting the deal. A high-flying Internet company about five or six years ago, AOL has fallen upon hard times. The Time Warner merger is widely seen in the industry now as a mistake, or at least a huge disappointment. Now that AOL is trying to remake itself as a free portal, it has a great deal to gain from making its content more available to Google, to say nothing of the benefits from the advertising portion of the deal.
Google, too, can gain much from the content end of the deal. As one analyst pointed out, “AOL has great programming and knows how to program content.” And there’s no question that this content draws visitors; according to Nielsen/NetRatings, during the month of November AOL attracted 74.3 million unique visitors, making it the fifth most popular website on the Internet. Who was number four? Google.
Large numbers of visitors give a website the ability to attract a large amount of advertising dollars. The Interactive Advertising Bureau expects that $12 billion will be spent on Internet advertising this year, a 25 percent increase over last year. By 2010, that number is expected to increase to $55 billion. An important portion of that online advertising market will go to display and banner ads. Google has not done much with those kinds of ads yet, preferring to focus on smaller, keyword-based text ads. But Yahoo! is already tapping into that market. Google’s deal with AOL will allow it to break into display ads in a big way.
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