FT Briefing: Google/AOL

AOL’s 20m internet customers make it a prized partnership target for both Google and Microsoft.

About 10 per cent of Google’s revenues come from advertisements placed on AOL’s website, even though AOL gets about 80 per cent of the revenue from these sales. Microsoft had spent much of the year courting AOL, as AOL’s existing agreement with Google was due to end in 2006, but Google won out with an agreement to buy 5 per cent of AOL for $1bn. Google will also provide AOL with $300m worth of advertising credit to promote AOL’s websites through Google’s advertising network, and will grant AOL unprecedented access to its own websites.

AOL to sell Google’s advertisements: AOL will be the first company to sell advertisements using Google’s network in an arrangement described as “white-labelling”. The advertisements will appear on AOL’s own website, alongside those sold by Google.

Although Google displays its advertisements on many other websites, sharing a cut of the profits with the publishers, until now Google has controlled all its own advertising sales.

Graphical advertisements on Google.com: AOL can also sell advertisements, including graphics, that will run on parts of Google’s website, but not its main Google.com search page. The introduction of graphical advertisements marks a departure from the search engine’s trademark stark, minimalist look which is popular with many users.

AOL content in Google’s search index: AOL will now make its web content more accessible to Google’s search engine indexing technology. Traditionally, most of AOL’s web content is only available to subscribers, and was kept “hidden” from Google.

This will almost certainly boost AOL’s showing in Google search results as some AOL content would not have been made available to Google’s indexing tools before, but Google insists its core search algorithms will not be altered to give AOL preference in its search results, which would damage its reputation for objectivity.

Video: Google and AOL will collaborate on video search, an area where AOL has a lead, and AOL’s large collection of paid-for video items will be “showcased” on Google

Instant messaging: Google’s instant messaging and VoIP software, GoogleTalk, and AOL’s Aim instant messaging software will be altered so that users can communicate between the two networks. Instant messaging networks typically limit users to only communicating with others on the same network, but the other leading providers of instant messaging software, Microsoft and Yahoo, announced a similar agreement in October.

Search agreement renewed: The new deal extends the existing agreement, signed in 2002, under which Google provided both its search engine and search advertising services to AOL’s websites.

Microsoft: out in the cold

The proposed Google-AOL deal would leave Microsoft, which has put considerable effort into building its search and online advertising business, out in the cold. It had been negotiating with AOL for much of this year to take over the search marketing partnership when the agreement with Google ended.

Microsoft’s MSN.com trails Yahoo and AOL as an internet destination, and Google leads for search engine traffic. A deal with AOL would have extended the reach of Microsoft’s search technology and cemented its fledgling efforts to launch its own search marketing network to rival those of Google and Yahoo.