Google "Goes Steady"—But with AOL???
"This is our dream come true. Our fates are intertwined," gushed an AOL executive in reacting to the recent announcement that Google would pony up $1 billion for a 5% stake in AOL. I’m not surprised that AOL would blissfully sigh that its dreams have come true, any more than I would be surprised at the same reaction by a homely geek if Kirsten Dunst asked him to go steady.
I mean, AOL has been slowly losing full-time subscribers for years. Its proprietary business model runs counter to what the wide-open Web is all about, and what Google ostensibly stands for. A billion bucks and favored placement of its content throughout Google’s site gives AOL some breathing room, and the cachet of going steady with a babe. Over the long haul, I don’t think that the geek turns into Brad Pitt.
And what does Google get from this arrangement? Well, AOL is still the largest Internet service provider in the world (34 million subscribers worldwide; 110 million occasional visitors), and now AOL will start using the Google search engine and pay per click ads instead of Overture’s and Inktomi’s—for five years anyway. AOL will also get the exclusive right to sell online banner ads for Google, and will split the proceeds 80/20 with Google. And since AOL has been the largest source of ad revenue for Google, this relationship keeps the revenue with Google while it also keeps Microsoft (which also wanted the AOL deal) at bay.
Still, I’m skeptical about defensive strategies, the kind that try to build a fortress around existing revenue streams, especially when they involves an investment in yesterday’s winner (remember, the AOL brand is so weak that it was dropped from the “AOLTimeWarner” corporate title). Google has always been about offense—doing something new and fresh, forging new sources of revenues, partnering with or buying really cool, innovative, companies—doing whatever’s necessary to ultimately provide the individual with unbiased, unadulterated access to all the information on the Web . That’s why investors love Google; they can count on seeing big spurts of earnings from groundbreaking ventures. Would it have been a disaster if Microsoft had “won” the deal? Should cool, profitable Jet Blue be so nervous about the upcoming US Air-America West merger that it tries to outbid one or the other and get in on the deal? Not on your life.
In his blog, Matt Assay of Info World is blunter than I am. He says flat-out that Google has sold its soul to get into the TimeWarner empire. Matt may be wrong. I may be wrong. Investors certainly think we’re wrong. Upon the first leak of the news, they bid up Google stock $7.62 to an unfathomable $430.15 a share. So maybe this is a brilliant move, or minimally, since Google market cap is over $120 billion, what’s one measly billion among friends?
I still have a gnawing feeling that this move is the first chink in Google’s armor, but hey, maybe it’s true love after all.
I mean, AOL has been slowly losing full-time subscribers for years. Its proprietary business model runs counter to what the wide-open Web is all about, and what Google ostensibly stands for. A billion bucks and favored placement of its content throughout Google’s site gives AOL some breathing room, and the cachet of going steady with a babe. Over the long haul, I don’t think that the geek turns into Brad Pitt.
And what does Google get from this arrangement? Well, AOL is still the largest Internet service provider in the world (34 million subscribers worldwide; 110 million occasional visitors), and now AOL will start using the Google search engine and pay per click ads instead of Overture’s and Inktomi’s—for five years anyway. AOL will also get the exclusive right to sell online banner ads for Google, and will split the proceeds 80/20 with Google. And since AOL has been the largest source of ad revenue for Google, this relationship keeps the revenue with Google while it also keeps Microsoft (which also wanted the AOL deal) at bay.
Still, I’m skeptical about defensive strategies, the kind that try to build a fortress around existing revenue streams, especially when they involves an investment in yesterday’s winner (remember, the AOL brand is so weak that it was dropped from the “AOLTimeWarner” corporate title). Google has always been about offense—doing something new and fresh, forging new sources of revenues, partnering with or buying really cool, innovative, companies—doing whatever’s necessary to ultimately provide the individual with unbiased, unadulterated access to all the information on the Web . That’s why investors love Google; they can count on seeing big spurts of earnings from groundbreaking ventures. Would it have been a disaster if Microsoft had “won” the deal? Should cool, profitable Jet Blue be so nervous about the upcoming US Air-America West merger that it tries to outbid one or the other and get in on the deal? Not on your life.
In his blog, Matt Assay of Info World is blunter than I am. He says flat-out that Google has sold its soul to get into the TimeWarner empire. Matt may be wrong. I may be wrong. Investors certainly think we’re wrong. Upon the first leak of the news, they bid up Google stock $7.62 to an unfathomable $430.15 a share. So maybe this is a brilliant move, or minimally, since Google market cap is over $120 billion, what’s one measly billion among friends?
I still have a gnawing feeling that this move is the first chink in Google’s armor, but hey, maybe it’s true love after all.
posted by Oren Harari at 6:12 PM
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