AOL moves to pure advertising model, what about shareholder Google?

AOL's “strategic flexibility

If AOL’s rumored move to “free ad-based Web access” materializes, AOL will be stepping up its efforts to obtain more advertisers and more advertising business. How will a new advertising-supported AOL model impact the AOL-Google shareholder advertising partnership?


According to reports in The New York Times:

AOL is putting the final touches on a plan that would stop marketing its subscription service…Instead, it will redouble its efforts to build a free, advertising-supported business on the Web…

Until now, AOL had tried to bolster its dial-up business, which remains highly profitable even as revenue falls. But it has concluded that this effort is a costly distraction, both to customers and to Wall Street. The company figures that its attempt to promote its free sites is confusing when it is also still selling a paid service. By accelerating the decline, the company hopes to hasten the day when it can again present itself to investors as a growth story.

Last December, AOL and Google created a “global advertising partnership” and Google bought 5% of AOL for $1 billion. AOl and Google announced specifics of the strategic advertising alliance aimed at “serving users and advertisers”:

Under the strategic alliance, Google and AOL will continue providing search technology to AOL's network of Internet properties worldwide. The agreement's broad range of new features for users and advertisers include:

  • Creating an AOL Marketplace through white labeling of Google's advertising technology - enabling AOL to sell search advertising directly to advertisers on AOL-owned properties
  • Expanding display advertising throughout the Google network
  • Making AOL content more accessible to Google Web crawlers
  • Collaborating in video search and showcasing AOL's premium video service within Google Video
  • Enabling Google Talk and AIM instant messaging users to communicate with each other, provided certain conditions are met
  • Providing AOL marketing credits for its Internet properties

Specifics on Google’s 5% equity stake in AOL:

Time Warner will retain management control and full strategic flexibility over AOL, while Google will have certain customary minority shareholder rights, including those associated with any future sale or public offering of AOL.

As AOL seeks to gain more advertisers and more advertising business, how will AOL wield its “strategic flexibility” in regards to the “advertising partnership” it created with minority shareholder Google, last December?

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