Looks like Google checkmates Microsoft's AdCenter?

Looks like Google checkmates Microsoft's AdCenter?

Summary: 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.

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TOPICS: Google
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checkmate.jpgAccording 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.

Topic: Google

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4 comments
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  • The deal I want to know about...

    Is the one that ended the Google embargo of CNet.

    But back to the subject in question. Let's see, Google was getting $500M annually from AOL. Now they get $100M by handing back 80% of revenue, plus a cash outlay of $1B for a 5% stake in a shrinking company.

    Over a, say, 5-year period they lose 3 billion and get back $500M or maybe a little more (depending on how slowly AOL dies).

    Granted, it's a short-term hurt on MS AdCenter, but where will Google's P/E be in 5 years?
    broper
  • Favoritism?

    I'm not sure how favored placements help in ad conversions? Google culls/pulls back poor performing ads. Does this mean it hobbles its servers to favor AOL ads? It means having to serve up more pages to get a click, not efficient. And it could mean it might be better to place ads through AOL rathern than Google.

    Plus, a favored deal with AOL would be short-term, and for distribution of GOOG's search box. Even if AOL gets ALL the revenues for now, how long will it last? As long as it is useful to GOOG. AOL needs a better game plan than this.
    foremski
    • Do No Evil, unless we have to...

      According to the NY Times, AOL demanded preferential placement in search results for their content:

      "An executive involved in the talks said Time Warner asked Microsoft to give AOL similar preferred placement in advertising and in its Web index and that Microsoft refused, calling the request unethical."

      So, Google's unbiased results algorithm goes out the window.

      As for AOL, I think Carl Icahn has an idea about how to recover value: sell the thing before it dwindles away to nothing.
      broper
      • Good ;point....

        There is something not quite right here...there has to be a missing component because otherwise it doesn't make sense.
        foremski