According to the various, widely covered press reports, Google is close to a deal that locks rival Microsoft out of AOL's storehouse of ads. This is unwelcome news for Microsoft, which badly needs the AOL traffic to kickstart its AdCenter service, which is set to debut in the U.S. soon.
Ballmer likely threw more than chairs when he heard the news this morning. It might be time to start thinking about using the $40 billion in cash to see if Yahoo wants to dance...
In the meantime, AOL/Time Warner has parlayed its swing vote into a sweet deal, reviving Time Warner's fortunes with $1 billion from Google for 5 percent of AOL and the opportunity for even perks from Google, such as more favorable placement for AOL/TW content (not in the pure non-paid search results).
From the New York Times:
The executive said negotiations between the three companies reached a fevered pitch on Thursday night when teams from Google and Microsoft were in separate rooms of the Time Warner Center in Manhattan and executives from the media company walked back and forth between them.
Finally, around 9 p.m., Richard D. Parsons, chief executive of Time Warner told Eric E. Schmidt, chief executive of Google, that he would accept Google's recently sweetened offer. 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.
From the news.com story:
According to filings with the Securities and Exchange Commission, Google derives as much as 10 percent of its advertising revenue and traffic from its partnership with AOL through sponsored listings within its search engine. And although that percentage has dropped from 12 percent a year ago and will likely continue to fall, the estimated $400 million in revenue isn't likely easy for Google to give up.
The reported Google-AOL deal would give AOL a valuation of $20 billion. Time Warner shares closed at $18, giving it a market capitalization of nearly $84 billion, compared with Google's $430.15 a share close and more than $127 billion market cap. Microsoft, meanwhile, saw its stock close at $26.90, giving it a market cap of more than $286 billion.
Google had 48 percent search market share in October, compared with 22 percent for Yahoo, 11 percent for Microsoft's MSN and 7.2 percent for AOL, according to Nielsen/NetRatings.
The Wall Street Journal (reg. required) reports that AOL could sell advertising on Google search results on AOL sites and display ads around Google's Web publisher network.