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December 17, 2005

Google AOL deal backstory and backlash

Posted by David Hunter at 11:03 PM ET.

In today’s New York Times, Saul Hansell and Richard Siklos have the behind-the-scenes story of the impending Google AOL deal revealed yesterday. It’s got Time Warner executives shuttling between separate conference rooms at TW HQ where the Microsoft and Google teams are ensconced and TW CEO Richard Parsons leaving a Christmas party at 9PM Thursday night to shake hands with Google CEO Eric Schmidt to seal the agreement. Parsons then called Microsoft CEO Steve Ballmer Friday morning to deliver the bad news. It looks like the deal is done and merely awaiting approval by the TW board on Tuesday.

When all the dust settles, there will be the inevitable post mortems on whether Google paid too much to keep their search contract with AOL. However, one facet of the rumored deal is of particular interest to Google’s traditional advertising community:

Google has agreed to give AOL ads special placement on its site, something it has not done before. Until now, Google prided itself on its auction system for ads, which treated small businesses on an equal footing with its largest customers.

By agreeing to change its business practices for this deal, Google fends off what could have been a significant challenge from a combination of AOL and Microsoft and cements its position as far and away the largest seller of search advertising.

Maybe, but the resulting cost in cachet may be more than the cost in cash. More:

Google has been providing Web search and search ads for AOL since 2002. In the new arrangement, Google will offer promotion to AOL in ways it has never done for another company, two executives close to the negotiations said.

If a user searches on Google for a topic for which AOL has content – like information about Madonna – there will be a special section on the bottom right corner of the search results page with links to Technically, AOL will pay for those links, which will be identified as advertising, but Google will give AOL credits to pay for them as part of the deal. They will also carry AOL’s logo, the first time Google has agreed to place graphic ads on its search result pages.

Google will also provide technical assistance so AOL can create Web pages that will appear more prominently in the search results list. But this assistance will not change computer formulas that determine the order in which pages are listed in Google’s search results.

Google will also make a special effort to incorporate AOL video programming in its expanding video search section and it will feature links to AOL videos on the video search home page. These links will not be marked as advertising.

An executive involved in the talks said Time Warner asked Microsoft to give AOL similar preferred placement in advertising and in its Web index and that Microsoft refused, calling the request unethical.

And that’s the crux of the matter. Some early reactions:

John Batelle (also quoted in the article):

If this is true, AOL will once again be the ramp over which a major company jumps the shark.

Matt Asay at InfoWorldGoogle sells its soul for a mess of pottage:

The lesson? Never, ever trust a capitalist who pretends to be otherwise. “Do no evil” was a catchy slogan for Google, but one that it was willing to sell for a few bucks.


I remember Google saying that you can’t buy high rankings, well it looks to me like that is not the case anymore.

The next episode of this saga will be when the final terms are made public, but Microsoft may well have dodged a bullet.

Filed under AOL, Alliances, Coopetition, Google

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3 Responses to “Google AOL deal backstory and backlash”

  1. Microsoft News Tracker » More adverse reaction to Google AOL “sell out” Says:

    [...] As I mentioned yesterday, whether or not Google is overpaying for AOL, it certainly seems to be tarnishing its reputation. More commentary: [...]

  2. Microsoft News Tracker » More Google AOL deal reaction Says:

    [...] The last part casts rather a pall over Mr. Peck’s analysis, but you get the idea. However, there were also more of those pesky voices of doubt I mentioned over the weekend ([1], [2]) saying that perhaps Google gave up too much credibility in order to do the deal. [...]

  3. Microsoft News Tracker » AOL and Google confirm deal Says:

    [...] Update – 10:20 PM: As for concerns from current advertisers and publishers about special treatment for AOL ([1], [2], [3]), AP Business Writer Michael Liedtke queried Google CEO Eric Schmidt: That arrangement already is raising questions whether Google will rig its algorithms so that AOL ranks higher in its search results — a prized position that Google has repeatedly said can’t be bought. [...]

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