| Search Engine Google to Get 5 Percent of AOL |
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| Written by Administrator | |
| Sunday, 18 December 2005 | |
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Google, in $1 billion dollar financial deal, has beaten out Microsoft
for a 5 percent stake in AOL, which will strengthen its partnership
with its largest customer. As a 5 percent owner of AOL, Google will
also share in any of the company's profits. Microsoft had proposed two partnerships with AOL, including one that would combine some of the two companies' business units, however the two companies could not agree on how to make the partnerships work. Although Microsoft is disappointed at not having signed a deal with AOL, they knew that Google had the advantage. A source familiar with the terms of the deal said Friday that the deal will allow AOL to sell ads on Google’s behalf directly to advertisers, as well as share in the revenue. This will expand Google’s dominant position in online advertising. Google will also allow AOL to place advertising with images in its search results- something Google hasn’t done in the past. The deal ends talks with Microsoft, which had been in negotiations with AOL for the last several months. Microsoft CEO Steve Ballmer was informed of the pending deal Friday, via a phone call from Time Warner CEO Richard Parsons. Microsoft has declined to comment. An Internet analyst from Stanford & Poor, Scott Kessler, said “I think the last thing Google wants to see is Microsoft making a splashy debut with their former best customer. I think to some extent it’s a land grab.” Stanford & Poor does not hold any Google stock. The deal was not finalized as of Friday night. A source stated it is a “handshake agreement over a term sheet” agreed to on Thursday night in the offices of Time Warner, the parent company of AOL. The deal is expected to be finalized over the weekend, with formal announcement being made Tuesday, after a scheduled Time Warner board of directors meeting. Google has not commented on the deal. This is the second time that Google has gotten a deal from AOL potential partners. In 2004, they won a contract against Yahoo to provide ads for AOL’s European business. The agreement will keep Google as the only provider of search technology to AOL. That partnership was set to expire next year but will be extended for five years. AOL had already represented approximately 10 percent of Google’s revenue. Google's current partnership with AOL sets Google as the search engine technology on AOL. Google places ads alongside the search results, and the two companies split the revenue. Within the parameters of the deal expected to be confirmed Tuesday, AOL will be able to sell the search ads itself, as well as the Google ads that appear on many third-party Web sites. This will allow AOL to offer a wider range of services. ``We can go into conversations with advertising partners and offer everything Yahoo does and more,'' said a source with information on the agreement. AOL will also be able to feature its content more prominently on Google. AOL will convert its inventory of video content into a format compatible with Google's video search engine. Google is also giving AOL an allotment of advertising on its search engine that will allow it to promote its content with special ads in the column alongside search results, the source said. Observers have stated that losing AOL as a partner wouldn’t have significantly effected Goggle’s bottom line profits, but would have been an embarrassment. “I think it has more to do with stature than economics,” said chief executive Ellen Siminoff, of Efficient Frontier. “I think it was shrewd of Google to go after it, because it doesn’t allow anyone else to come after that business.” Google's stock closed up 1.8 percent to $430.15 on the Nasdaq stock exchange. Time Warner shares closed up 0.9 percent to close at $18 a share. Steve Berkowitz, chief executive of Emeryville search company Ask Jeeves, said the agreement validates the importance of Internet search and advertising. And it may help AOL's relationship with advertisers. But he said it does little to change the status quo. ``I don't think anything changes for Google,'' Steve Berkowitz, chief executive of Emeryville company Ask Jeeves, said. ``At the end of the day, they end up with the same deal. Google gets to keep its partner and not allow Microsoft any rope.'' By Patricia Fuller |
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