Google confirms US$1bn stake in AOL

21 Dec 2005

Online search giant Google has pipped Microsoft at the post in terms of acquiring a stake in AOL. It is understood that Google is to invest US$1bn for a 5pc stake in AOL. The deal, which follows intense negotiations, values AOL at US$20bn.

Microsoft was also vying to take a stake in troubled internet player AOL with a view to integrating its own internet service into the company.

The fact that Google is prepared to spend US$1bn in a 5pc stake in AOL, however, demonstrates its ambition to prevent Microsoft from dominating the lucrative internet advertising market.

According to Google and AOL, both companies are planning to collaborate on an online video offering and make more AOL content available to Google users. It has also been suggested that the traditionally sparse Google homepage could soon be seen to carry online ads.

AOL had been seeking a partner to boost its value. The company had seen its share value plunge from a high of US$80 to US$18 today since its amalgamation with Time Warner in 2000. Last week, AOL founder Steve Case voiced calls for AOL to be split from Time Warner.

Describing the US$1bn investment move as a “strategic alliance” Google says the agreement creates a global online advertising partnership and makes more of AOL’s content available to the search giant.

Time Warner chairman and CEO Dick Parsons said the agreement will strengthen AOL’s position in the fast-growing online advertising business and will drive more advertisers to its web properties. “This agreement is key to fulfilling our commitment to realise the potential of AOL’s very large online audience. As digital technologies continue to drive industries together, the great value and opportunity inherent in Time Warner’s structure and array of premier businesses becomes increasingly clear. A critical piece of this strategic alliance will be our content, which we will be making more accessible to Google users.”

From Google’s perspective, the agreement leverages technologies from both companies to connect Google users to a wealth of new content. “We’ve also created a simple way for AOL Marketplace advertisers to buy and place search-related advertising across the AOL network. This partnership is an important next step for our companies,” said Google CEO Eric Schmidt.

The agreement’s broad range of new features for users and advertisers will include creating an AOL Marketplace through white labelling of Google’s advertising technology in a way that will enable AOL to sell search advertising directly to advertisers on AOL-owned properties. It will also see the expanding of display advertising throughout Google’s network.

The companies said the agreement will make AOL content more accessible to Google web crawlers and see both companies collaborate in video search and showcase AOL’s video service within Google Video.

The deal will also enable Google Talk and AIM instant messaging users to communicate with each other.

By John Kennedy