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The deal announced on Wednesday will see Google power the search areas of AOL, CompuServe, AOL.com and Netscape and is expected to go into effect this summer. And while Google alone is a hot Web property, the deal will further expand its reach by giving it access to AOL's more than 34 million members and tens of millions of visitors to the company's Web-based properties.
Additionally, a marketing agreement between the two companies will see AOL users get access to Google's targeted paid listings product, which offers a selection of search engine listings ranked by relevancy, as well as by how much sites pay to be listed.
Previously these paid listings services were provided to AOL by a US company and Google competitor called Overture Services (previously GoTo.com) whose contract with AOL expired on 01 May. Importantly, this marks the second time that Google has supplanted Overture after it signed a similar deal with Internet service provider EarthLink in February 2002.
When that deal was signed Overture's shares tumbled on Wall Street and on Wednesday shares in Overture were slumping USD9.45, or 28 percent, to USD24.74 in pre-open trading over the Redibook ECN.
Essentially Overtures' service, as well as Google's product, consists of a search engine that lets Web sites bid to be listed and ranked in searches with those who pay the most getting the top spot on Web searches. It is a service that advertisers have been excited to get into in recent months, although users by-and-large have not taken it to heart.
What made the deal with Overture advantageous for AOL was its willingness to split advertising revenues with AOL. Google was reportedly unwilling to enter into such an agreement, and over the last two years it has consistently lost share in this sub-market of the search industry to competitors like Overture and Inktomi.
Overture Services actually filed a patent infringement lawsuit against Google last month, claiming that the company illegally used some of Overture's ad-placement tools. The suit, which applies to all Google products that are not related to its mathematical search methods, follows a similar case that Overture filed against FindWhat.com in January. Google denies that it infringes on the patent.
Google, which is described as "the reigning champ of on-line search" by Bob Pittman, chief operations officer-elect of AOL Time Warner, has rarely been criticised for its search technology, but in recent months its business model has been called into question.
Google is in fact preparing for an initial public offering and has only been on the on-line scene since 1999 after it emerged from a project in Stanford University. Since then it has become a symbol of top-notch technology and the company reportedly has a technology-driven culture, but has tended to put business matters on the back burner.
As such the company does not sell any non-text ad space on its main site and its advertising revenues are thought to be limited. Much of its revenues come from technology deals with companies like Yahoo, which paid USD6.1 million in cash to use Google's search technology on its site.
Google declined to reveal the value of Wednesday's deal with AOL.
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