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Google snatches AOL from MS

Joint salesforce, equity stake

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Google has apparently won the battle to retain AOL's affections, edging out a bid from Microsoft. But the cost is high, and establishes several precedents for the Mountain View company that might have been unthinkable a couple of years ago.

While AOL's parent Time Warner has yet to make a public statement, published reports claim that Google has paid $1 billion to take a 5 per cent stake in the media giant. AOL's sales team gets access to the Google Network, and Google will also give Time Warner's media properties preferential treatment:

"Google, which prides itself on the purity of its search results, agreed to give favored placement to content from AOL throughout its site, something it has never done before," reports the New York Times.

Google will promote AOL web properties and include AOL's online videos "amongst the search results", adds the Wall Street Journal, ambiguously. 'Amongst' may mean 'as part of', or it may mean along side', and there's a world of difference between the two. Google emerges from the negotiations as an advertising powerhouse. It will use AOL's ad sales team and make use of a range of advertising inventory, such as banners, that brand conscious advertisers demand.

The deal is principally about advertising, but the pair also agreed to extend their search agreement, signed in 2001, for another five years.

Microsoft had hoped to use AOL to kick start its own AdCenter ad brokerage, and give its own MSN Search engine a boost. In a business dominated by the duopoly of Yahoo! and Google, AOL is a key customer, and represents 10 per cent of Google's business.

The Journal has a detailed account of the negotiations. [subscription required]

Microsoft initiated negotiations in January, and spent much of 2005 in talks. According to the Journal,

"Time Warner grew concerned that Microsoft would put its MSN assets into a joint venture and let them wither, focusing instead on its plans to thread Internet functions throughout its Windows and Office software."

The two sides took a breather in September, and Google finally woke up to the fact that Time Warner was a strategic ally. See How Microsoft can 'kill' Google (Simple - just buy its customers).

According to the account, Yahoo! offered Time Warner a stock swap. Yahoo! denies making such an offer. This week Google offered AOL ad sales force access to its ad network, and introduced the investment proposal, which clinched the deal. ®

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