America Online, Google seal US$1b deal
(AP)
Updated: 2005-12-21 08:59

America Online on Tuesday sealed a $1 billion transaction to sell a 5 percent stake to Google Inc. in a deal that deepens the ties binding two of the Web's most popular Web sites while thwarting Microsoft Corp.'s efforts to grab a larger piece of the booming Internet advertising market.

Approving the expanded alliance had been considered a mere formality last Friday when AOL's corporate parent, Time Warner Inc., abruptly ended several months of negotiations with Microsoft, which had hoped to supplant Google as AOL's main advertising partner.

Many of the details, including a plan that may display more graphical ads on some of Google's traditionally sparse Web pages, had been leaked to the media in the last few days.

There was one significant new twist in Tuesday's official announcement: users of AOL's Internet-leading instant messaging service will be able to communicate with the users of Google's 4-month-old service. Microsoft and Yahoo Inc, another major rival of both Google and AOL, plan to link their instant messaging services next year.

Google's aggressive courtship of AOL illustrates how seriously it regards the looming threat posed by Microsoft as the world's largest software company gears up to expand into the lucrative field of online search �� a specialty that Google has so far dominated to emerge as a corporate powerhouse in its own right.

"Our investment underscores our recognition of AOL as a valuable strategic asset and our desire both to contribute to and participate in its future success," said Google CEO Eric Schmidt.

Had Microsoft been able to win over AOL, it would have become a much more prominent player in Internet advertising while dealing a financial blow to Google. AOL accounted for about $420 million, or 10 percent, of Google's revenue during the first nine months of this year.

AOL's rebuff of Microsoft also demonstrates how much it prizes its relationship with Google, which has built a network where more than 200,000 businesses and Web sites now bid for the right to have their ads distributed across the Internet.

"We're very pleased to build significantly on our special relationship with Google in a way that will meaningfully strengthen AOL's position in the fast-growing online advertising business and help drive more advertisers to its Web properties," said Time Warner Chairman Dick Parsons.

To trump Microsoft, Google is making a series of concessions, including giving AOL the right to tap Google's vaunted search engine technology to sell ads on its own Web site. AOL currently shares the revenue generated by the ads sold by Google.

Google is also giving AOL a $300 million credit to buy ads on its rapidly growing Web site �� a vehicle that could help AOL attract more traffic as more of its dial-up subscribers drop their service.

Through November, Google operated the Web's fourth most popular site with 85.5 million unique U.S. visitors followed by AOL with 74.3 million visitors, according to Nielsen/NetRatings. Yahoo ranked No. 1 with 104 million visitors, followed by Microsoft at 96.1 million and MSN.com at 91.3 million.