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” 🙂
Google gets to strengthen its position and puts MSFT on the back foot in the ‘we’re an ad company’ stakes. Key for consumer attention. Watch for MSFT response.
disclaimer: this is not an official MSN response just my opinion looking in from afar.
For MSN it was a win:win which ever way the deal went. If MSN had won the deal what would they have got.
1. AOL network reach is not valuable anymore. AOL is losing its market share which is why both Google and MSN were able to bid for a stake. AOL needed this deal as it is losing money and Time Warner was not going to bail it out. Bottom-line it has less eyeballs on its network. So Google’s billion is just a temporary crutch. AOL is broken and unlikely to be the comeback king.
2. Yes MSN would have liked the deal to take away 12% of Google’s revenue. Google is still a single revenue pony and losing 12% of that revenue would have hurt. Google was made to pay above the odds to protect its revenue. If Microsoft had not bid then would Google have paid AOL at all? Google has now wasted $1bn dollars which it could have used elsewhere to buy other companies or increase the revenues it paid to adsense partners. It cannot afford to do either now it has made this pointless payment.
3. On the otherhand MSN has never recieved monies from AOL. So they have lost nothing by not losing the bid. i.e no revenue loss. AOL may switch to Firefox as its main browser but did/does it not own Netscape and yet it still uses IE? So today AOL will continue to use Google search, Google advets and IE … but now have $1bn more in their account. So who won and who lost really?
AOL will be an albatross around Google’s neck.
So who had the last laugh really and who got to point the billion dollar finger at who?
Just an alternative thought 😉
I am trying to find out if anyone has bought or bought into AOL. AOL has such awful service, but I like their featuares. I had hopes that if someone like msn bought it, there would be an improvement in AOL, and hopefully, make them more honest. I have msn and got excited when they were talking about joining with AOL, but all that talk about Google and/or msn seems to have gone to the wind and nothing happened. If you don’t know, could you tell me where to find that information? I want to sign up with AOL again, but only if I see an honest company has purchased it and forced AOL to step up. Any info yu can give me would be appreciated.
I like the original idea for your name. I think the name you went with is more user friendly though. Useful article, even 5 years later.
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