Faced with the prospect of losing a sizable chunk of its ad business to Microsoft, Google has, apparently, made AOL a counteroffer it can’t refuse. According to media reports, Google will give Time-Warner, AOL’s beleaguered owner, a cool billion in return for a 5 percent stake in AOL. It will also give AOL the privilege of selling ads that will run on Google’s search network, which up to now has been restricted to ads sold by Google. Finally, in a concession that apparently clinched the deal, Google will give AOL ad content special treatment, according to the New York Times:
Google, which prides itself on the purity of its search results, agreed to give favored placement to content from AOL throughout its site, something it has never done before.
So much for the purity of the algorithm.
In isolation, the deal seems to be good news for Google – it’s going to make it harder for Microsoft to build up its own ad service and challenge Google’s nascent monopoly. But the deal may not be an isolated event. The question is: How many more deals will Google need to cut with advertisers and publishers in the future? Is this deal a sign that Google is consolidating its power or losing it?
UPDATE: A Washington Post piece has more details on the deal, including how Google will subsidize AOL ads on its network through a “substantial fixed-dollar budget.”
UPDATE 2: For the record, both the Times article and the Post article have now been revised. The Post’s new version omits the sentence I quoted from. (The disappeared sentence originally read “AOL will also be given a substantial fixed-dollar budget from Google to purchase advertising to promote the Internet service.”) The Times’s new version changes the sentence I quoted to read “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.”