• by Wendy Davis , Staff Writer @wendyndavis, December 22, 2005

Time Warner's decision this week to sell a stake in AOL to Google potentially catalyzes a host of changes for the online ad industry--and, quite possibly, the traditional ad market as well.

One of the deal's most intriguing effects is that it already has Google and AOL exploring the sale of TV ads --a possibility raised by Time Warner Chief Executive Dick Parsons in a memo to staff yesterday. Google, as is standard operating procedure for the company, has said next to nothing beyond what was written in a prepared statement the companies issued Tuesday.

Still, it's no secret that Google--already selling magazine ads--is enmeshing itself with the entertainment industry. Late last month, Google appointed Hollywood veteran Ann Mather to its board of directors. Additionally, CBS chairman Leslie Moonves told Reuters that CBS was in discussions with Google about video search, among other initiatives; earlier this year, Google worked out a deal to stream the UPN show "Everybody Hates Chris."

Certainly it's not too big a stretch to imagine that Google's deal with AOL might just give Google an edge with Time Warner's TV properties.

Another unanswered question is what impact the new arrangement will have on search marketing. On one hand, the deal seems to solidify Google's already strong lead in search volume and market share; if nothing else, it blocks Microsoft--now far behind Google and Yahoo! in search market share--from powering AOL's search engine and using AOL's subscribers to boost MSN search traffic.

But some industry watchers point out that Microsoft might be able to gain ground in search even without AOL. In a report issued this morning, Merrill Lynch research analyst Lauren Rich Fine reminds everyone that Microsoft isn't going away any time soon. Labeling Microsoft "a formidable competitor," thanks to its new paid search service, adCenter, as well as its ubiquitous operating system, Fine cautions that AOL and Google will have to prove that their deal can deliver on the promise of increased ad revenues.