Google Inc to invest $1 billion in 5 percent AOL stock

Google Inc to invest $1 billion in 5 percent AOL stock

SAN FRANCISCO - Internet search behemoth Google Inc has agreed to invest $1 billion as a part of an agreement with Time Warner Inc towards gaining 5 percent of the stake in America OnLine.

This new deal means that the Mountain View, California-based Google has further cemented its alliance with a key partner. AOL was responsible for 8 percent of Google's ad revenues in the period ending September. This agreement is also an extension of a 2002 agreement that allows AOL to use Google's search engine and also receive a percentage of the ad revenues that appear beside the search results.

Under the current deal, Google departs from using small text ads and will now display ads that have graphics as well. The deal was inked by Richard Parsons, chief executive of the New York-based Time Warner and Eric Schmidt, chief executive at Google. Analysts see the agreement as booting Mr Parsons' stock since it helps him ward off a potential threat by billionaire investor Carl Icahn, who owns 3 percent stock in AOL. Icahn has been at the forefront of an effort to break up Time Warner, something that is not at all in Parsons plans.

Commenting on the deal with Google, he said, "As digital technologies continue to drive industries together, the great value and opportunity inherent in Time Warner's structure and array of premier businesses becomes increasingly clear." Parsons was of the opinion that hitching up with Google was much better than tying up with Microsoft. "Do I think this is the best way to help AOL realize its full potential? Yes," he stressed. Last Friday, Time Warner decided to call off the months of negotiations that had been going on with Redmond and that opened up the door for the deal with Google. Had the deal with Microsoft, received a nod, the software giant would have had a bigger pie of the advertising revenues.

Commenting on the deal, Schmidt said, "Today's agreement leverages technologies from both companies to connect Google users worldwide to a wealth of new content." Under the deal, users of AOL Instant Messaging system will be able to communicate across the spectrum with Google Talk users. A similar arrangement between Microsoft and Yahoo users is in the works.