Google Buying Stake in AOL for $1 Billion
By David A. Vise
Washington Post Staff Writer
Friday, December 16, 2005; 2:51 PM
Google Inc. is buying a 5 percent stake in Dulles-based America Online for $1 billion as part of a far-reaching business and advertising partnership that will link the two companies in many ways and will greatly enhance AOL's financial prospects, according to people familiar with the agreement.
The deal between Google and AOL is a setback for Microsoft Corp., which had sought to replace Google as the search engine on the AOL service and had been in talks with AOL's parent, Time Warner Corp, since January. Google is the leader in search, followed by Yahoo Inc. and Microsoft's MSN Search, which is a distant third.
Under the agreement, Google will remain the search engine on the AOL service with a revenue sharing from text-based ads provided by Google of about 80 percent to AOL and 20 percent to Google. In addition, AOL will get the exclusive right to sell other types of advertising, including banner ads, for the Google network. AOL will keep 20 percent of the proceeds from those ad sales, while Google will get about 80 percent.
"This is our dream come true," one source familiar with AOL and Time Warner's strategy said. "Our fates are intertwined."
AOL is already the largest single source of ad revenue for Google, generating about 10 percent of its ad dollars, according to public filings. AOL's business strategy under its chief executive, Jonathan Miller, is to garner more of its revenue in the future from rapidly-growing online advertising.
As part of the new agreement, AOL gains the right to sell Google-generated, text-based ads that appear on the AOL service. This change will enable AOL to sell all forms of online advertising itself to any company.
