NEW YORK Google and America Online inked a $1 billion deal that will bring the companies closer together.
The agreement calls for Google to take a 5 percent stake in AOL, which will sell search and display ads in Google's AdWords system. AOL will also be able to sell search ads on its own site, which will let it package brand and search campaigns. In turn, AOL will expand the amount of ad inventory, including display opportunities, Google can sell on AOL properties.
Google's decision to take a 5 percent stake in AOL caps months of speculation and jockeying, with Google beating out front-runner Microsoft, which wanted AOL to use its adCenter search and display ad system, according to reports. Instead, AOL chose to deepen its relationship with Google in a less complicated and far-reaching deal, but one that could provide it the traffic it needs to make its AOL.com portal succeed.
For Google, the deal is part of the company's push to complement its mostly direct-response search listings with more brand advertising. Earlier this year, it began allowing its advertisers to choose specific sites in its network to place graphical advertising. Now, AOL's sales force, experienced in dealing with brand advertisers, will also sell such ads.
By going with Google over Microsoft, AOL hopes to drive more users to its free Web portal. With its dial-up subscriber base in decline, AOL is banking on luring Web users to its varied content offerings.
As part of this effort, Google will give AOL an undisclosed amount of advertising credits, which it can use to draw search users and those on Google's ad network to AOL content offerings. Google will not give AOL ads preferential treatment, said Patrick Keane, head of sales strategy at Google.
"They will play in the auction just as the other advertisers do," he said.
AOL content will also gain more prominent placement on Google Video, the nascent search engine effort to catalog Web video. Other parts of the deal call for AOL and Google to collaborate on instant-messaging software and in making AOL's Web pages easier for Google to include them in its index. Keane said the expanded index, particularly with rich AOL content, would in turn increase the amount of ad inventory available.
"This is a good partnership for the overall digital marketing economy," he said.