Why Was Google So Desperate for AOL?

Posted by: Rob Hof on December 18, 2005

I don’t get it. Here’s a company that seems to have everything going for it—absurdly high revenue growth and profits and a $127 billion market cap. But according to this New York Times story:

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.

So if that account is correct, it’s seemingly giving up the vaunted purity of its search results for… what? AOL represents a small portion of its revenues, yet Google’s paying it a billion bucks for the privilege of looking less ethical than Microsoft. As Nick Carr says, Ouch. Is this the moment when Google has jumped the shark, as John Battelle asks?

Even after trolling through the massive coverage through memeorandum, something doesn’t feel right. If anyone can identify just what Google’s getting that’s worth risking its reputation (deserved or not) as the best search site, I’m sure readers here would love to hear it….

Reader Comments

bo

December 18, 2005 4:34 AM

it is all about Microsoft, other's loss is ur gain. Google just can't afford to let M grab AOL away.

Nitin

December 18, 2005 4:43 AM

Hmmm... another way to look at it is what does AOl offer that makes both MSFT and Google desperate for it? What leverage does it have in the deals to make both of them listen to its ostensibly abnormal demands?

Bill

December 18, 2005 8:46 AM

Could Google be positioning itself to having 100% interest in AOL?

Jim Dermitt

December 18, 2005 10:39 AM

I guess AOL is a safer bet than pumping cash into China in hopes of a big return.

Mark Burris

December 18, 2005 11:00 AM

I scratched my head over this one too. Google's Hippocratic-resembling oath has been put at risk to get a piece of ... AOL? I'm a Google believer, so I'm giving them the benefit of the doubt - for now. But from a brand and marketing point-of-view, this is troubling.

Austin Hearns

December 18, 2005 11:44 AM

You are all missing something.

If you combine the recently launched AOL.com portal, a huge member base, and the increasingly blurry line between TV and Internet ( for video content and information )....the deal helps extend Google's role as an enabler of relevant advertising. And as it helps bring more traffic to AOL...that will in turn bring more revenue to Google.

John Battelle knows this as well...he basically wrote the business case in his book.

Come back in 12 months and see how smart your postings are then.

Kudos to Google.

cho

December 18, 2005 1:32 PM

I think this is primarily about video. I used to work at AOL (got out of there after a year of shaking my head at the cluelessness) and there is a massive push to aggregate video content, which google will want to catalogue in its video search, anway. Google is going to help with SEO--search engine optimization. They will also throw up some links. This is not about sullying their search algorithm. I'm not sure about the 1 billion dollar price tag, though perhaps those are small beans to google. 10% is also not a small chunk, guys. I think google is going to be giving up very little here to retain that 10%--which is sure to grow as AOL gets smarter about the web.

james

December 18, 2005 4:10 PM

If you look at Google's product releases [Talk, Gmail, Video etc], they come up with great ideas but dont have the public numbers to make some of them viable. AOL on the other hand have a large customer base. Buying into AOL, Google is also buying into that customer base. Within the next few months, you will see GoogleTalk having interporality with AOL's IM, TimeWarner TV/movie programs finding themselves in GoogleVideo etc etc. And above all else, you may end up seeing an AOL-Google internet subscription service. Dont forget, AOL is not only in the USA. They operate in a number of other countries, including Australia. How better and easier it is spending $1billion and gaining a worldwide foothold?

Dub

December 18, 2005 9:15 PM

Google is brilliant. They basically gave AOL $1B in exchange for the $3B+ that they stand to collect as their share under the new 5-year search deal. They keep the AOL traffic spout away from Yahoo and Microsoft for 5 years, during which the real search battle (video, etc.) will likely occur. And they get equity that might be worth something if AOL can figure out a web strategy.

AOL keeps calling this a strategic deal because they have to do so, not because it is. TW has its own pressure for hyperbole here and the folks at AOL are so desperate to make a run at rebuilding the business, everything is 'strategic'.

But I'm sure the Google folks just look at this as cutting short-term margins on one deal to defend their business. That's probably how everyone else should view it too--a smart move.

kevin Lee

December 19, 2005 12:40 AM

AOL also has a direct impact on click prices for two reasons.
1) AOL traffic is very high quality, and that high conversion props up pricing even higher
2) The top positions are syndicated to AOL and the pressure to get sufficient position to get the high converting AOL traffic escalates bid prices.

saurab

December 19, 2005 4:28 PM

It's all about blocking MSN's contextual matching program from getting immediate exposure to a very large and non-tech savvy audience (AOL, that is). Why is that cool? Because non-tech savvy folks tend to click on ads more often ;) hehe

gggrrrrr

January 24, 2006 2:21 AM

The two companies I love to hate, now holding hands. What is this world coming to?

AOL is well-known for violating the privacy of members who write email, use AIM, and use their chat rooms, going as far as to read member's emails and delete them if they find the content mentions competitor's names, monitoring and even prohibiting certain AIM communications, saving records of AIM IM's, and kicking members out of chat rooms for comments they find "inappropriate". (The comments they find "inappropriate would fill a page).

Now you have AOL, famous for it's Big Brother stewardship of it's own subscribed masses, hooking up with Google, the Big Brother of Internet Search. In a different mood I'd laugh 'til I fell off my computer chair, but it's late and I'm tired. Google, famous for not deleting any user's search queries since 1998 or so, Google, with their permanent cookies enabled on your browser so they can keep a record of your search queries and results forever, Google, who without asking your permission first, auto-saves each search query you enter right onto the results page as you're using it, and kindly reminds you of all the crap you looked at the day before when you open up their search box again, Google, who like AOL, wants to turn their various services into another dumbed-down AOL-like "portal" to the Internet. I'll give you a "portal": turn your computer on. Use a dialer or hi-speed cable modem to connect to the Internet. Open up a browser. IE, Firefox, Avant, any of them will do nicely. Most of them have a search engine toolbar built right into them. Some even have that toolbar set to a Google default. There! You have everything you'll ever need to use the Internet up and throw it away, if you like. Portals are for dumbed-down client bases, such as AOL's overwhelmingly brain-dead masses, who have been spoon-fed this "portal" garbage since AOL became "the big thing" back in '95 or so.

Google's going to help AOL optimize search engine results? Why? Are they all so ignorant at AOL that they can't do this on their own? Even I know how to optimize results for my own pages, and I've used the Internet less than two years. What could possibly be hiding within AOL's content that anyone besides their own subscribers needs? Do we need access to their 759,273,021 personal weblogs and homepages? Are we missing something because we don't have ready access to their "chat" rooms, where people type in bizarre lower-case "language" based mostly on phonetics and lack of anything important to say? Is there anything on the Internet that anyone who doesn't use AOL can't find without access to AOL's results? Almost nobody wants or needs AOL's pages showing up in Google's search results except people who already use AOL.

Optimizing AOL's Google search results is a big waste of time...luckily it's already written into their contract that Google cashes out for $3 billion regardless of the success of this little "venture".

Someone commented above that the deal is brilliant because of AOL's "high-quality customer base". Comprised of who? Teenagers? Older people who've used AOL since it's inception because they're used to it and "don't have a reason" to use another ISP? AOL can't keep their newer customers--their service costs too much and their browser/portal is too dumbed down and clunky for today's more sophisticated, been-there, done-that user, who wants their intelligence appealed to, not their sense of "let's choose the easiest [dumbest] way". AOL is like grade-school for learning about the Internet; you grow up and get a real ISP--or you don't.

Google's wasting their time, money and SEO resources on AOL. How about helping some non-profits optimize SEO instead, which would add back a little bit of the stardust their once innovative company has lost?

Don McLean

December 29, 2007 9:03 AM

When monopolies eliminate competition,
we all lose.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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