Google Inc will pay Time Warner Inc $1bn for a 5% stake in America Online Inc, and the two companies will team up on a variety of advertising and content related initiatives, it was announced yesterday.
Confirming speculation, the companies said that they have extended a three-year-old relationship under while AOL carries Google search and advertising, a deal that accounts for about 10% of Google’s revenue.
The deal comes as part of Time Warner’s strategy to appease shareholders that are concerned with what they see as an AOL drag factor on the overall Time Warner business, but at least one major shareholder has remaining concerns.
On Monday, 3% shareholder Carl Icahn said he was still concerned any deal between Google and AOL could prevent Time Warner realizing AOL’s full value in future if an offer is made by a Google competitor.
As part of the deal announced yesterday AOL will now white-label Google’s ad services under the AOL Marketplace brand, enabling it to selling search-based advertising directly on its own sites. That part of the deal will also allow AOL to sell graphical ad space on Google network.
On the content technology side, AOL will take steps to increase the searchability of its content on Google, and offer its video content through Google Video.
The two companies will also work together to allow users of Google Talk and AOL Instant Messenger, their respective instant messaging networks, to interoperate with each other, provided certain [unspecified] conditions are met.
That part of the deal seems to accelerate the probability of the popular IM systems becoming ubiquitously interconnected, following a similar deal between Yahoo and Microsoft in October.
Most of the details of the deal were already well-known, having been broadly leaked to the mainstream media over the last week or so, and were agreed upon at was appeared to be the end of a long-running series of negotiations.
Microsoft Corp, rival to both companies with its MSN brand, was said to be in talks with AOL earlier this year about a similar tie-up. Yahoo! Inc was also connected to the talks at one stage, before dropping out.
Time Warner started seeking a strategic partner after coming under pressure from investors to increase the value of its struggling online unit, which is also in the process of reinventing itself as a web-oriented property.
For Microsoft, struggling to grow its own online ad business, there was the opportunity to steal away one of Google’s biggest channels, at a time when many believe Google is becoming one of the software giant’s most serious threats.
Indeed, many saw Google’s entry into talks with AOL earlier this year as a defensive move. After all, Google’s roots in geek culture and software development and AOL’s history as a content-oriented walled newbie garden hardly seem synergistic on paper.