In an earlier post, I predicted that MSFT would win a deal with AOL (or buy it outright). Looks like I was wrong–Google appears to have emerged as the victor, as the NYTimes, among others, now reports. According to Saul Hansell’s article, Time Warner will announce tomorrow that AOL will renew its three-year old partnership defining how Google powers AOL’s search functionality.
In particular, the deal highlights AOL’s renewed importance. Just three years ago, most considered AOL to be footnote (albeit a big one); the company had a stodgy user base, lackluster features, and unappealing growth prospects. Obviously, general business conditions have improved. More importantly, however, AOL made a number of smart managment decisions in opening its platform and, at the same time, the team did a solid job nurturing its enormous community. That in mind, to win the AOL deal, Google was apparently willing to provide AOL with much more than cash (though AOL will get $1B in exchange for a 5% equity stake). The real sweetner: (1) AOL gets the ability to display ads on Google’s ad network, (2) AOL gets to offer its existing advertisers a variety of keyword search inventory (which Google controlled before), and (3) AOL gets technical assistance so they “can create web pages that will appear more prominently in [Google's] search results list” (not clear how potential conflict of issues will be resolved, but that’s a story for another day).
Also, the Google-AOL deal is yet another indication of how Google–not Microsoft–is increasingly the most important technology company of the day.
In any case, all this is pretty amazing considering that just three years ago AOL wrote off more than $50B in a single quarter.
