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| Time Warner chief executive Dick Parsons, seen here in 2002, shrugging off the threat of a shareholder revolt led by billionaire investor Carl Icahn over his plans for AOL, said the alliance with Google was the right choice for his troubled media group. (AFP) |
Google Inc. and America Online Inc. have expanded their search and advertising alliance to include video and instant messaging, shutting out Microsoft Corp., which had fought hard for a deal with Time Warner Inc.'s AOL unit.
Google will also invest $1 billion for a 5 percent stake in AOL.
America Online said Tuesday that Google had agreed to the investment, as part of an enhanced agreement where Google will move beyond text-based advertising to allow AOL to sell graphical ads to Google's fast-growing ad network.
The stake effectively values AOL at $20 billion, a key benchmark should Time Warner elect tospinoffor sell a part of its Internet unit in response to dissident shareholder Carl Icahn's proxy campaign tobreak upthe company.
Terms of the deal call for AOL to make more of its Web sites searchable via Google search, including a plan to feature AOL's premium video services within Google Video, a way of searching for Web-based video programming.
The two companies also said they had agreed, under certain unspecified conditions, to allow users of Google's recently introduced instant messaging system Google Talk to communicate with users of AOL's market-leading AIM instant messaging service.
Ahead of the announcement, analysts called the new agreement a major defensive win for Web search leader Google, depriving Microsoft of a major customer that would have jump-started its push to compete with Google in the online ad services market.
In a letter to Time Warner's board of directors released Monday, billionaire investor Icahn labeled the potential AOL-Google deal as "disastrous" because it mayrule outpotential future deals AOL might do with Google rivals such as eBay Inc. or Microsoft.
Shares of Google edged lower in after-hours trade on the Nasdaq Tuesday after closing at $429.74. Time Warner shares edged higher after the bell after closing over 1 percent higher at $17.74 on the New York Stock Exchange.
In an announcement released by the two companies Tuesday, Time Warner Chairman and Chief Executive Officer Dick Parsons said: "We're very pleased to build significantly on our special relationship with Google in a way that will meaningfully strengthen AOL's position in the fast-growing online advertising business and help drive more advertisers to its Web properties.
Google CEO Eric Schmidt described AOL as "one of Google's longest-standing partners."
"We are thrilled to strengthen and expand our relationship," he said.
Parsons said the agreement would help realize the potential of AOL's large online audience.
"As digital technologies continue to drive industries together, the great value and opportunity inherent in Time Warner's structure and array of premier businesses becomes increasingly clear. A critical piece of this strategic alliance will be our content, which we will be making more accessible to Google users," Parsons said.
Google, founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, is the global leader in search technologies.
AOL operates the largest Internet access subscription service in the United States.
(Agencies)
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Updated: 2005-12-22 10:40
