Time Warner Sells Stake In AOL To Google

In a move that deepens the advertising partnership between Google and AOL, Time Warner Tuesday sold 5 percent of AOL to Google for $1 billion.

Among the most significant of the deal's provisions is that the search giant will continue to power AOL's own search engine--a proposition thrown into doubt earlier this year by rumors of a possible AOL/Microsoft pact. The loss of AOL's search users would have been a big blow to Google, which derives around 11 percent of gross revenues from searches conducted on AOL.

The deal will also allow AOL's sales force to use Google's AdWords bidding system to sell pay-per-click ads on AOL properties.

The AOL sales team will be able to sell display ads to run on sites within Google's AdSense network of publishers--although not on the main Google pages. In fact, Patrick Keane, Google's director of advertising sales strategy, denied a report in Tuesday's New York Times stating that Google intended to start running display ads on its main search results pages as part of the deal.

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The arrangement also gives AOL certain advantages in Google's search results--both organic and paid. For organic search, it appears that Google will give AOL help in optimizing its pages for Google's crawlers--a process described in a joint statement as "making AOL content more accessible to Google Web crawlers."

When it comes to paid search, Google will give AOL "credits" for buying pay-per-click ads on Google's search results pages and its AdSense publishing network. Those credits ultimately will lower the total amount of revenue paid by AOL to Google for pay-per-click ads directing users to AOL properties.

Another part of the deal is interoperation between AOL's market leader AIM instant messenger client, and a major expansion of Google Video search. "This gives us more opportunity to index AOL's rich library of content," said Keane. "We want to be able to index as much Time Warner content as possible." Keane declined to comment on exactly which content items would be indexed.

Time Warner approved the sale to Google despite the rumblings of dissident shareholder Carl Icahn. In an open letter to the board Monday, Icahn called the move a potentially "disastrous decision." Icahn has made it known that he intends to wage a proxy war to gain control of the Time Warner board at next year's annual shareholders meeting.

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