Google Inc. is poised to pay US$1 billion for a 5 per cent stake in Time Warner Inc.’s America Online Inc. unit, The Wall Street Journal reported Friday afternoon on its Web site, moments after also reporting that Google and AOL are in exclusive talks related to an advertising partnership.
The brief one sentence “breaking news” item on the Journal Web site was attributed to “people familiar with the situation.” A more detailed story about the advertising partnership negotiations used the same attribution.
AOL has spent months reportedly in discussions with several companies over possible tie ups. At one time, Yahoo Inc. had been one of those companies, but it then dropped out, and recently AOL has been in discussions with Google and Microsoft Corp.
Google and AOL have a years-long relationship for AOL to carry paid search ads from the Google network, and split the revenue with the search engine giant.
Also, AOL’s general Web search is powered by Google’s search engine.
Microsoft has reportedly been pursuing AOL to get it to instead carry paid search ads from the new ad network the Microsoft MSN Internet division is building, and to drop Google’s search engine in favor of MSN Search. Google, of course, is interested in retaining AOL as an ad network partner for its paid search ads and as a licensee of its search engine.
AOL Chairman and Chief Executive Officer Jonathan Miller declined to comment about the rumored negotiations in October in an appearance at the Web 2.0 Conference in San Francisco. However, he acknowledged that AOL is a “swing voter” in the market for sponsored search ads, because of its traffic volume.
Beyond protecting the revenue it gets from AOL’s distribution of its ads and use of its search engine, Google would benefit in other ways from acquiring a stake in AOL, said Guzman & Co. financial analyst Philip Remek.
“AOL is the leader in various technologies and services in which Google isn’t a significant player,” Remek said. “Just by working [more closely] with AOL in this fashion Google will learn and gain capabilities that would have been more difficult to develop on its own.”
For example, Google has to diversify its revenue stream, which is almost totally dependent on paid search ads, and a closer affiliation with AOL could boost Google’s nascent efforts to carry other types of online ads, such as display/banner ads, Remek said.
In order to have an efficient display/banner ad system, a company must have a large base of registered users and a deep knowledge of their online activities to target them with the right ad at the right time, something at which AOL is an expert and a leader and Google is simply a nonentity, Remek said.
Becoming an AOL stakeholder might also lead AOL to help Google further develop its Google Talk instant messaging service and Gmail Web mail service, as well as other online services, Remek said.
If Microsoft is in fact not at the negotiating table, that represents a major missed opportunity for Bill Gates’ company to boost its fledgling paid search ad network and strengthen its online advertising activities in general, Remek said.
The Wall Street Journal reported Friday that, as part of the deal, AOL would be able to sell advertising among the search results provided by Google on AOL Web properties. AOL would also sell display ads across Google’s network of Web publishers, the newspaper reported.
Another area of collaboration would be the inclusion of AOL’s collection of online videos among Google search results, the Journal reported. Moreover, Google’s arrangement to provide search technology for AOL, slated to end in 2006, would be extended for five years, according to the Journal.
Google representatives didn’t immediately return calls seeking comment. Microsoft, through its Waggener Edstrom Inc. public relations agency, and Time Warner separately declined to comment.
