GOOGLE-AOL ALLIANCE GIVES TWO BROADEST AD REACH ON WEB

AOL Gets Preferred Positions on Google; Google Keeps Access to AOL Audience

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NEW YORK (AdAge.com) -- The AOL and Google deal, sealed yesterday, gives the two advertising power and reach that no other entity on the Internet possesses. It will also give AOL what appears to be a preferred position among Google partners. And it gives Google and its ad clients access to rich content through AOL programming.

AOL and Google finally wrapped up details on a business partnership yesterday that will create cross-marketing opportunities for both companies. Under the terms of the pact, Google will pay AOL parent Time Warner $1 billion for a 5% stake in AOL.

The cross-marketing aspects of the deal give AOL advertising clients a chance to bid for search ad sponsored links through Google's contextual-advertising AdSense program. AOL sales staff can also sell sponsored links across AOL search. AOL search will continue to be powered by Google, a cooperation that has existed since 2002 and which brings in about 10% of Google's revenue. Also, Google's ad clients will be able to purchase display ads, of the sort that AOL sells, across Google's network.

"We will build a system for AOL whereby AOL will be able to sell into search for AOL search and those same advertisers will be able to sell into Google AdSense advertiser network," said Patrick Keane, director of sales strategy, Google, in an interview late last night. He added that details have yet to be hammered out. But that the focus of the partnership "means a greater inventory of ads," he said. "There are going to be interesting relationships and cross-selling across all the inventory."

Some, however, are already grumbling that the deal will give AOL preference over other Google clients. "It's an extension of the partnership," Mr. Keane said. He added that there will be no special placement or preference for Google's algorithmic, natural search results.

Companies that can monetize search and display advertising will be the Internet leaders, said Todd Chanko, analyst, Jupiter Research. When all ad dollars are finally tallied for 2005, search is expected to bring in $4.2 billion in ad revenue overall, and display will earn $5.1 billion, according to Jupiter numbers. By 2010, display and search will be neck and neck. Search is projected to make $7.5 billion, while display will bring in $7.2 billion. "What this shows is search and display will be key revenue drivers for companies best-positioned to deliver the goods," he said. "What you're seeing now is the Google-AOL deal prefiguring those trends."

Under terms of the deal, Google will also index AOL video content, which users can then access via Google search or AOL search. "We think Time Warner has some of the best content available," Mr. Keane said.

When AOL redesigned its sites to remove the walled garden and open up the portal to be used free by the anyone on the Web, it grew video streams by more than 120%, as it reconfigured itself for broadband access, Fred McIntyre, VP-video at AOL Media Networks, told Advertising Age. With the addition of In2TV on AOL in early 2006, Time Warner's archive of thousands of TV programs will be made available.

Mr. Keane said that plans about precisely how to monetize that video content are not yet set.

In another apsect, Google Talk (Google's instant messaging and voiceover IP product) and AOL Instant Message product will be opened up to allow users of both services to communicate with each other. AOL's IM product is the largest on the Internet. Users of both services will be able to communicate across properties, potentially opening up more ad opportunities.

A deal was anticipated for months, as AOL sought a strong partner to help solidify its new direction and try to reassume prominence on the Internet. AOL held talks with a number of potential partners, finally narrowing it down to just two -- Microsoft and Google. Microsoft, which had hoped for a partner and large audience to boost its search engine, was edged out of discussions last week. News of Google’s partnership with AOL leaked out late on the evening of Dec. 15.

The pact will give Google and AOL's clients access to the largest combined audience on the Web -- each attracting about 80 million users a month. The unduplicated audience for September of AOL and Google was 107 million users, according to Nielsen/NetRatings. AOL also has 20 million dial-up subscribers loyal to the AOL brand. AOL users spend about six hours a day on the portal, Nielsen/NetRatings' numbers show.

In 2004, Google's revenue was about $3.2 billion. AOL was just under $9 billion, which included subscription revenue of $7.5 billion and ad revenue of $1 billion, said Mr. Chanko. "Money isn't the entire story here," he said. "Google has tremendous brand equity. If AOL's goal is strategic, Google is the better choice for a partner."

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