Google: What did they actually get for their $1bn?

I’ve been reading the reports in the New York Times, WSJ and Washington Post about the details of Google’s purchase of 5% of AOL (Not Time Warner, just the AOL entity) for $1bn.

From what I can see from the press reports, the deal is as follows:

• Google will continue to supply the official search service for AOL
• AOL will take 80% from the sale of text based ads on that search service, Google will take 20%
• AOL get exclusive rights to sell other types of advertising, including banner ads, for the Google network. AOL take 20%, Google 80%
• Google will promote AOL properties, including AOL Video “amongst the search results”
• AOL will display graphic ads in the “Sponsored Links” right-hand-side column of Google search results.
• AOL will also be given a substantial fixed-dollar budget from Google to purchase advertising to promote the AOL Internet service

So having read all that, the question I’m left with is “What is Google really getting for it’s money?“.

The way I see it, Google have given TimeWarner $1bn and in return they have to promote AOL properties on the Google site, they have to display graphical adverts from AOL on their search results and they have to bankroll AOL’s promotion of it’s connectivity services.

Hmmm, that sounds like a nice deal if you can get it! 🙂

Ok, sure – Google are getting a percentage cut of the ad-word sales on the AOL search site, and a larger cut of these non-text adverts. But surely Google don’t actually need the income stream (especially in return for all these concessions)? If there’s one thing Google already has, it’s arguably the Internet’s strongest income stream around. And actually, I would have thought 20% of the sale of adwords on AOL search is pretty insignificant compared to their own search property.

Don’t forget you have to factor in the negative fallout and detrimental effects from the “big up AOL on Google.com” stuff too.

Google have to promote AOL properties on the Google site – that means more clutter and potential ill feeling from some users (AOL ain’t the “do no harm” company Google claims to be, nor do most tech-savvy people have much interest in AOL content). Plus I would have thought it precludes Google opening up their own rival property if they have to promote AOL’s first.

I also think consumers may be slightly ‘displeased’ with Google search results getting plastered with image-based adverts for the first time.

There is one thing, however, Google has got for its money… It’s stopped Microsoft/MSN from getting in there instead.

In my opinion this is all simply a “blocking tactic”. Microsoft was desperate to get the AOL deal to strengthen their search and advertising properties within the MSN group.

Microsoft was so desperate, in fact, that they were in the same building as Google during the 11th hour negotiations (3rd par of NY Times article).

Apparently it pretty much went down to the wire.

When you look at the GYM (Google, Yahoo!, Microsoft/MSN), Microsoft is trailing a poor third in the areas of search and advertising.

Partnering with AOL would have strengthened the Microsoft/MSN AdCenter property (AOL seems to have some formidable resource of their own in this area – a resource Google doesn’t need anywhere near as much as Microsoft probably does/did).

In the search landscape, having MSN Search powering the AOL Search service would not have made MSN Search technically any better (AOL have no search expertise of their own) but it would have improved the consumer perception and reach of the MSN Search brand. Which, in this game, is arguably just as important as the quality of the product itself.

So, what did Google ultimately get for their $1bn? They got to up-middle-finger Bill (as we say in East London).

I really wanted to call this post “The billion dollar f**k off” 🙂