Advertisment

Microsoft, Google still vying for AOL linkup

author-image
CIOL Bureau
New Update

Kenneth Li

Advertisment

NEW YORK: Microsoft Corp. and Google Inc. are in a "two-horse" race to strike an Internet advertising partnership with Time Warner Inc.'s AOL online unit, sources familiar with the talks said.

Industry experts say AOL is as critical a swing factor on search technology traffic among the three big Internet media companies -- Google, Microsoft and Yahoo Inc. -- as it once was on online advertising, a category it practically invented in the early 1990s.

Microsoft and Google have each submitted proposals to AOL over the past few weeks.

Google is still very much in the running, the sources said, contradicting Tuesday's Wall Street Journal report that said signs pointed to a deal with Microsoft.

Advertisment

At least one more round of discussions is planned with each of the two parties, one source familiar with the plans said.

An agreement, which now appears unlikely to include selling an equity stake in AOL, is likely to materialize in coming weeks, probably before Christmas, the source said.

The discussions are occurring amid public threats by billionaire investor Carl Icahn, who said last week he would hold Time Warner board members "personally responsible" if they strike a deal that undervalues AOL.

Advertisment

In other talks, Comcast Corp., which sources said was considering a joint deal with Google, is now also seeking a separate arrangement with AOL, regardless of the outcome. The top U.S. cable operator is discussing how it can market its high-speed Internet service to AOL's dwindling but still large dialup customer base, among other topics.

AOL made surfing the Internet and chatting online a household phenomenon. But it has been a drag on Time Warner's stock as it had lost millions of dialup Internet subscribers since the merger of America Online and Time Warner in 2001.

Since then, the Dulles, Virginia-based unit has focused on providing free programming and services to boost online advertising revenue.

Advertisment

Google has generated about 11 percent of its revenue in the first half of this year from its current deal to provide search technology to AOL, but this figure overestimates the importance of the deal to the company.

Analysts said the deal only accounts for 4 percent of revenue after Google returns fees to AOL in its revenue-sharing agreement.

Meanwhile, Microsoft, eyeing Google's lead, is seeking to build its own paid search business, which analysts consider one of the most lucrative sectors in online advertising. It is testing a syndicated search system that competes with Google in France and Singapore and plans a worldwide launch next year.

Advertisment

Microsoft's current proposals with AOL involve a simpler deal that would marshal the advertising forces of both companies in a joint venture, one source said.

Time Warner, Microsoft and Comcast declined to comment. Google officials were not immediately available.

Google shares, which earlier fell 1 percent, were up $7.19, or nearly 2 percent, to $413.04 in midday Nasdaq trade.

(Additional reporting by Eric Auchard)

tech-news