Summarized -- Google buys 5% ($1B) stake in AOL

[David Farber <dave () farber net>]

http://www.washingtonpost.com/wp-dyn/content/article/2005/12/16/ 
AR2005121601892.html



Google Inc. is buying a 5 percent stake in Dulles-based America  
Online Inc. for $1 billion as part of a far-reaching business and  
advertising partnership aimed at boosting AOL's financial prospects  
as the Internet service struggles with the loss of millions of  
subscribers.

...Under the agreement, Google will remain the search engine on the  
AOL service for five years and Google will give AOL millions of  
dollars of free advertising on the search engine to promote its  
network of Web sites.

...While AOL has been losing subscribers, it is still the nation's  
biggest Internet service, with about 20 million users who pay for  
Internet access; e-mail; and an array of music, news and other content.

...AOL's most popular feature is its free instant-messaging service,  
which has about 43 million users who chat online through text  
messages and provides an attractive platform for Google to  
dramatically expand its presence in free telephone service over the  
Internet.

...Icahn, who has been pressuring Time Warner to consider the sale of  
a majority stake in AOL, spin off its cable division and use cash to  
buy back tens of billions of dollars worth of its stock, criticized  
the AOL-Google agreement yesterday.

...The existing arrangement -- under which Google provides text-based  
ads and free search results on AOL -- will continue, with AOL keeping  
80 percent of those ad proceeds and Google taking 20 percent.   
Businesses pay for such ads, which appear to the right of and above  
the free Google search results, only when computer users click on them.

As part of the new agreement, AOL also gains the right to sell Google- 
generated text-based ads that appear on the America Online network of  
Web sites.

...One source said AOL will also have the right to buy graphic ads  
that appear alongside the text-based ads Google traditionally has  
displayed to the right of its free search results.

...The five-year deal gives Time Warner the choice of maintaining its  
95 percent ownership stake or spinning off a portion of AOL to  
shareholders to boost its stock price.

...Lawyers for Google and AOL will work out the final details of the  
new alliance over the weekend, before Time Warner board members, who  
have given their informal consent to the arrangement already, vote on  
the transaction.

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