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Google Secures AOL Partnership, Deals Blow to Microsoft

Strategic Insights

— 2 min read

The deal, worth $1 billion in cash, will allow Google to offer preferred placement to AOL ads on its search result pages, cementing Google's position as the largest seller of search advertising. The partnership, announced on December 2, 2005, comes as a blow to Microsoft, which had sought to form a joint venture with AOL to undercut Google's advertising business. The agreement will see Google give AOL special treatment in terms of ad placement, a departure from its auction system, which treats all businesses equally.

Key Takeaways:

  • Google's acquisition of a 5% stake in AOL for $1 billion is a significant coup for the search giant, solidifying its position as the largest seller of search advertising.
  • AOL will benefit from preferred placement of its ads on Google's search result pages, giving it a significant boost in its advertising sales business.
  • The deal is a blow to Microsoft, which had sought to form a joint venture with AOL to undercut Google's advertising business.
  • Google will provide technical assistance to AOL to enhance its video search capabilities and feature links to AOL videos on its video search home page.
  • AOL's sales force will also have the ability to sell search advertising on AOL's sites and some display advertising on the vast network of Web sites for which Google sells ads.
  • The partnership comes as a result of intense negotiations between Google and AOL, with Google ultimately agreeing to terms that differ from its past practices.
  • The deal is seen as a vote of confidence in AOL's business, with AOL's stock price rising 34 cents to close at $18 on December 2, 2005.

Statistics:

  • Google's revenue from ads on AOL's sites will be roughly $500 million this year, with Google paying AOL about $430 million (Source: Jordan Rohan, RBC Capital Markets).
  • The deal will give AOL predominant placement on Google's search result pages, with specific sections on the right corner of the page featuring links to AOL.com.
  • Google will provide credits to AOL to pay for links to AOL.com on its search result pages, with AOL also paying for these links.
  • Google will make a special effort to incorporate AOL video programming in its expanding video search section and feature links to AOL videos on the video search home page.

Sources:

  • "Google's First Test as a Chess Player" by John Battelle
  • RBC Capital Markets analyst Jordan Rohan
  • Gabelli Asset Management fund manager Larry Haverty
  • comScore Networks (Source: "Strengthening Ties" chart)
  • The New York Times article (title not specified)
  • Washington Post article (title not specified)
  • RBC Capital Markets

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