Friday, December 16, 2005

Google Grabs Garland in Grapple for AOL Partnership

Washington Post reports on Google's $1 billion-dollar victory in the contest for AOL's quest for an online ad and technology partner, a coup that had pitted Google against Microsoft and Yahoo. Of the options available to AOL it was clearly the best match and a great match for Google as well. In Microsoft AOL would have had a search partner with unproven ability to deliver sizeable audiences across the consumer spectrum and one with its own portal ambitions via MSN. Yahoo would have provided a much more media-savvy partner with a strong advertising product and strong user-generated media capabilities - perhaps too strong for a company that is already well down the road with integrating user-generated media and video into its own portal capabilities. And although Yahoo's search capabilities have strengthened considerably in the past year they have failed to make much of a dent in its stagnant market penetration.

In Google AOL gains the industry's leading source of online contextual ads, the strongest and fastest growing search presence, the most innovative approaches to user-oriented content aggregation via leading technologies and little direct competition to its established base of in-house and licensed content. AOL specializes in creating online communities and in listening carefully to its user base. Google is rather awkward when it comes to dealing with the human element of content but has the vision to create brilliant technologies that will bring users closer to the content that they want. The cultures are about as far apart as one could imagine - rather the opposite problems of the AOL/Time Warner merger - but with a mere 1 percent stake in AOL the pressures to combine the uncombinable are not likely to be great for some time to come. Add in Google's recent launch of XML-based modules for adding applications, mashups and other content to Google Homepages (CNET News) and you're looking at an extremely powerful base of content technology capabilities that can boost this potent combination of media giants into new levels of exposure and profitability.

The wild card in all of this is the power of user-generated media as a draw for large-scale content sites: Yahoo has been very aggressive in its recent acquisitions and partnering moves for social networks and content, moves that may not pan out in the short term for profits but that hold great long-term promise. Google's popular lags in functionality in comparison to other leading providers but has a strong market share, while its social networking portal has good traffic but little mindshare and lagging functionality as well. Yahoo may luck out with its user-generated media moves and create a more fun place to visit than the combination of AOL and Google can manage. But the key for 2006 will be who can draw the most ad dollars as quickly as possible; from this perspective the combination of mature and growing Google and AOL capabilities could be ringing in the most profitable combination of all of the majors.
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