Google / AOL Deal Finalized

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The Journal just published a few articles about the Google and AOL deal being finalized, and the events leading up to the deal.

In Bumpy Road Led to Alliance Of AOL, Google they stated:

Two weeks ago, when Time Warner Inc. was on the cusp of signing a sweeping online deal with Microsoft Corp., a team of executives from the media company's AOL unit traveled to Microsoft's headquarters in Redmond, Wash., to make sure everything was in order.

When the executives returned, they reported back to Time Warner's top deal negotiator, Olaf Olafsson, with some less-than-satisfactory findings. They had found some of Microsoft's technology to be clunky, while the contemplated joint venture with the software king contained what they thought were financial pitfalls.

On the deal being closed AOL, Google Expand Partnership, With a Key Ad-Sales Provision mentions:

  • AOL will be able to sell ads direct
  • AOL will also receive advertising credit valued at about $300 million toward buying ads on Google
  • "This is more than just a Google/AOL deal," said Richard Parsons, Time Warner chairman and chief executive, in an interview. "We began to see this as affecting all of Time Warner."
  • Eric Schmidt said "I've had the opinion for a long time that AOL was undervalued. Frankly, we want to make some money in it."

In Google's Faithful Just Want to Believe Alan Murray reminds us just how fragile Google's market position and margins may become:

This isn't the kind of winner-take-all lockup that, say, Microsoft has with its Windows operating system.

Indeed, the ransom to AOL seems to prove the point that Google isn't unassailable. Time Warner was on the verge of cutting a deal with Microsoft and taking AOL's search business away from the Googleplex. Google had to pay to keep that from happening. That's a billion dollars that starry-eyed investors turned over to the company this fall, thinking it would be used to invest in Internet telephony or some other great new business. Instead, it was used to hold on to old business. Shouldn't that be a clear warning sign that Google's costs of acquiring business are going to rise, and its triple-digit profit increases are bound to slow?