Search engine Google will invest $1 billion for a 5 per cent stake in Time Warner's AOL Internet unit, strengthening the alliance between the two Internet powerbrokers and creating new hurdles for competitors such as Microsoft.
With the deal, California-based Google cements its relationship with one of its biggest customers. AOL accounted for 8 per cent of Google's $1.6-billion gross revenue for the period ended September 2005, Red Herring magazine reported.
Under the terms of the deal, AOL said it will be able to sell search advertising directly to advertisers on its own properties using Google's technology. Before the deal, Google controlled the advertising, as the ads appear whenever users perform searches using the company's technology.
The two will also run a greater number of display ads, which are larger banner-type ads that weren't frequently found on Google.
For Time Warner itself, the deal means much more than a cash infusion. It's a shot at boosting ad revenue that could offset the decline in revenue from AOL's eroding subscriber base, Red Herring said.
Under the deal, not only will Google promote AOL's sites in the sponsored links in its search results, but AOL will receive $300 million worth of advertising, sources within AOL said.
For Google, it means victory. After months of negotiations, it has succeeded in thwarting a threat by Microsoft, which is presently testing its paid search offering.
The deal ensures that AOL will use Google's search technology for five years after the original agreement ends in 2006.
According to the terms of the deal, which was approved by Time Warner's Board after the markets closed, the two companies will also collaborate on an online video offering.
