Google Takes 5 percent of AOL
Reports suggest that Google has taken a 5 percent stake in AOL for $1bn. Previously, Microsoft had seemed favourite to cut a deal on paid advertising at least, despite seeing its offer of a merger between the portal and MSN rejected as too complicated.
Later reports intimated that Microsoft was proposing an arrangement to use the Time Warner company’s ad serving capability to boost its position in paid search. But Google, which already provides search services to AOL, beat Redmond to the punch.
John Battelle, whose recent book on Google, The Search, is reviewed here, has an intriguing surmise on why the search leader has put $1bn into AOL:
Why invest $1 billion in AOL? Well, should AOL go public, Google stands to profit ~ a lot. The company knows that by guaranteeing its business to AOL for the foreseeable future, it has in essence guaranteed AOL’s bottom line, providing a healthy earnings forecast for AOL and Wall St., should Time Warner decide to spin its erstwhile child back out as an independent public company.
What though are the chances of an AOL flotation? “My conversations with AOL execs lead me to believe the answer is yes, as long as the numbers look good. This Google deal takes care of that … and why would Google invest in a subsidiary of Time Warner, unless they were promised some kind of liquidity event?”
Game set and match to Google, it seems.
I agree that we should be questioning what kind of treatment AOL and their properties will be getting in the Google sponsored ads.
If they are given preferential treatment, that would be counter to the whole market-driven philosophy that guides pay per click advertising. It would set terrible precedent, and in my opinion, could cause uproar… I would liken it to insider trading where a few smaller players, like AOL, have competitive advantages that the rest of the market does not have.
Of course, that would beg another question. Would this really be the first time that Google gives preferential treatment to advertisers, or do other large advertisers have preferential treatment in the Google sponsored ads already?
I’d like to see some discussion of this on the Google blog… after all, that’s one benefit of blogs… stopping PR nightmares:)
By Scott on December 19th, 2005 at 2:43 pm
Yes, you’re right, Scott, it would be the end of apparently “pure” search. As you say, though, we don’t know what other sweetheart deals have been struck in camera. But, since Google draws 10 percent of its income already from AOL, why wasn’t this in place before? And why is it necessary now? Maybe AOL used Microsoft’s interest as leverage against Google. Who knows.
By John on December 19th, 2005 at 2:57 pm