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AOL Search Ends in Google Deal

Yesterday Time Warner Inc. announced a partnership between its AOL division and Google, the stratospherically valued search and advertising technology service provider. Great company that Google, but $435 per share? Get a grip. Anyway ... Through the deal Google will invest $1 billion for a 5% Stake in AOL, valuing Time Warner's online service at $20 billion, a needed star-quality endorsement for the beleaguered media giant. The key element in the deal is AOL committing to continue using Google's advertising technology, but with a twist: AOL will now have the ability to "white label" it and sell search advertising directly to advertisers on AOL-owned properties. Other interesting aspects of the partnership: a collaboration on video search, promotion of premium AOL content within Google Video, and an interop arrangement that may enable Google Talk and AIM instant messaging users to communicate with each other. So what does this mean for cable? First, it is noteworthy that Comcast is not part of this deal, as was once rumored. If Comcast did play, the pact would have created a cable axis of allies with AOL and Google. In the U.S., telcos are closely aligned with Yahoo! on broadband services while cable operators continue to go it alone. Interestingly, Time Warner Cable itself was not even mentioned in the basic partnership vision, highlighting the historic rift between the company's cable and online divisions. It would behoove the media giant to bridge that gap, particularly as video search will be an incredibly important strategic issue for cable TV services in the not-too-distant future. Also, Time Warner's selection of Google equaled a "no vote" on Microsoft, the other aggressive AOL suitor. At the apex of irony, rumor has it one of the reasons Microsoft lost out is that the AOL team concluded Microsoft's search software infrastructure was, shall we say, clunky. AOL would know best on that count, of course.
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