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December 18, 2005

Quick thoughts on the Google/AOL Deal

By Charlene Li

I'm on my way out the door for a few weeks of vacation (and I don't plan to blog or check work email!) but wanted to share a few quick thoughts about the supposed Google/AOL search deal.

- The deal doesn't change the overall industry much, with the exception that AOL now has the sweet deal of selling into Google directly. It's pretty much continuation of the status quo and AOL went with the safe, proven incumbent.

- I had a chance to talk with Sergey Brin at the Google Holiday dinner on Tuesday and he (as well as other executives) were tight lipped about any negotiations (surprise surprise). As the WSJ pointed out, Google charged into the talks once they got wind that Microsoft was trying to woo AOL away. I'm not surprised that Google upped the stakes by making an investment in AOL -- what's amazing to me is they thought it was worth $1 billion. I think losing AOL wasn't so much a financial issue as it was one of ego -- there was no way Google was going to let Microsoft beat it at anything as high profile as a major partnership.

- It appears the MSFT/AOL deal fell apart because they were TOO similar and had too many conflicts that couldn't be worked out. As I noted in a previous post, the deal made a great deal of sense on paper but any cooperation on the content front would have been a nightmare. Google/AOL is much cleaner and synergistic, as Google is happy to direct traffic to AOL content.

- Speaking of content, it’s not clear what AOL is getting in terms of preferred placement on Google search results. This is extremely important, as it will be the first time Google gives any sort of preferential treatment to content because of a business development deal, or, even worse in this case, because of an investment in the company. It brings up tremendous conflict of interest issues – is that AOL Madonna video in the search results because it’s the most relevant result or because it’s part of the AOL deal?

- And don’t count MSFT out yet because they (apparently) lost this deal. adCenter has a lot going for it and will be the foundation for the new Windows Live and Office Live offerings. The AOL deal would have been a tremendous validation of the product, but in the end, its performance will speak for itself.

Happy holidays, and I’ll catch you in the new year.

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Comments

melissa

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Andy

Charlene,

Great insight. What do you think about Google's access to AOL's huge user base? It seems to me that if Google is able to get AOL's users to use Google's community features, they will be able to eliminate Yahoo's main competitive advantage.

Yahoo is forging ahead with it's web2.0 initiatives with De.li.cio.us, Flickr, MyWeb,ShopoSphere, etc... Do you think the deal will give Google the opportunity to pose a challenge?

Thanks,

-Andy

Joe

I think it's very clear what AOL is getting out of the deal - directed traffic and revenue share! They're getting more people looking at their content (making it authoritative by default, albeit ephemerally) and they're getting cash from the search mechanisms that drive people to their site.

Scott

I agree that we should be questioning what kind of treatment AOL and their properties will be getting in the Google sponsored ads.

If they are given preferential treatment, that would be counter to the whole market-driven philosophy that guides pay per click advertising. It would set terrible precedent, and in my opinion, could cause uproar... I would liken it to insider trading where a few smaller players, like AOL, have competitive advantages that the rest of the market does not have.

Of course, that would beg another question. Would this really be the first time that Google gives preferential treatment to advertisers, or do other large advertisers have preferential treatment in the Google sponsored ads already?

I'd like to see some discussion of this on the Google blog... after all, that's one benefit of blogs... stopping PR nightmares:)

Ashley Bowers

I believe this will be a great thign for AOL and Google and sucks for Microsoft I am surprised Bill Gates got out bidded much have sunk to much into the XBox !

EmilYang

我终于可以不用通过代理来访问你的BLOG了,哎~!不容易啊~!(我在中国大陆)

Hong (Helen) Lee

Hi,
I am very interested in Social network and its trends, recently, MySpace, facebook has attract huge users base for age 18-24, my question to you is Social Network is only to college kids? What is the business model (revenue model)for social network beside advertisement? Will it fade away like internet bubble? How to attract users to come back to site after they already visited a few times?

Thank you for your inside thought.

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