Google, AOL in deal, ticks off Microsoft

Google, AOL in deal, ticks off Microsoft

	Published : Wed, 21 Dec 2005 14:05 By : Paula Demarzio Print this Story

SAN FRANCISCO: Google Inc. is investing $1 billion for a 5 per cent stake in America Online, the internet unit of Time Warner Inc. The alliance, first made public Friday and formally announced 20 December, provides for a combination of joint efforts in search and advertising fields and offers new functionalities in instant messaging and in video over the internet.

The alliance will help Google to use graphics in its advertisements, to be provided by AOL. Google will now be able to expand into display advertising, taking on Yahoo, which has presence in both paid search and display advertising, which together accounts for an annual $12 billion market.

Google will also offer $300 million in credit to AOL to buy ads on its website so that it can attract more traffic as more of its dial-up subscribers drop their service.

The deal provides for AOL to sell display and banner advertisements through Google's network of partner sites. AOL uses its Advertising.com for selling advertisements. AOL will also allow Google searches of many of its websites. It will place its premium video services with Google Video, so that the programmes can be searched on Google.

One trend-setting provision in the deal allows users of Google's new service, Google Talk, to communicate with users of AOL's AIM instant messaging service. Many analysts see this as a beginning of the emergence of a unified messaging platform. The tie-up is also an answer to Microsoft and Yahoo coming together to allow their millions of IM users to contact one another.

An immediate loser is Microsoft Corporation, which has been trying to get a deal with AOL. The software major has been talking to AOL to sell its search technology, which would have given it a substantial market share in the paid search business. Earlier, Friday, AOL's parent Time Warner had abruptly called off the talks with the software company.

After the deal was announced, Google's CEO Eric Schmidt said the investment underscored its recognition of AOL as a valuable strategic asset and its desire both to contribute to and participate in its future success.

AOL accounted for $420 million of Google's revenue during the first nine months of this year.

Time Warner chairman Dick Parsons described AOL's relations with Google as special and hoped to build on it so that AOL's position in the fast-growing online advertising business stands strengthened. He hoped the deal will help drive more advertisers to the AOL website.

It is estimated that Google has about 200,000 clients -- mainly businesses -- who want to have their ads distributed across the internet. According to Nielsen/NetRatings, the search company had some 85.5 million unique U.S. visitors to its site in November, while AOL had 74.3 million. Yahoo is No. 1 with 104 million visitors, followed by Microsoft at 96.1 million and MSN.com at 91.3 million.