Google buys a slice of AOL

Google and Time Warner on Tuesday announced that Google will invest $1bn (£568m) for a 5 per cent stake in the media company's America Online unit as part of a partnership that expands their existing search engine deal to include collaboration on advertising, instant messaging and video.

Google also is offering a $300m credit that AOL can use to buy keyword-based ads from Google.

Google will become the only shareholder in AOL other than Time Warner, the companies said in a statement. Google also will have "certain customary minority shareholder rights, including those associated with any future sale or public offering of AOL".

Under the new global advertising partnership, AOL will be able to sell all types of ads, including search, banner and display, across Google's network, which includes Google's own Web sites and the publisher sites that display Google-powered ads, said Marissa Mayer, Google's vice-president of search products and user experience. Google's home page and core search results page will stick with text-only ads, while graphical ads could appear on Google's video and image search sites, she said.

AOL will be able to use $300m in credit to purchase search-related ads through Google's AdWords auction system, or for other undetermined promotional purposes, Mayer said. The deal also calls for the creation of an "AOL Marketplace through white labelling of Google's advertising technology" that will enable AOL to directly sell search ads on AOL-owned properties, the companies said.

Also under the deal, Google will "make sure AOL Web masters architect their content" so it gets maximum exposure to Google's Web crawlers, but will not exchange any proprietary information to do that. She addressed concerns that arose before the deal was announced, saying an agreement with AOL could bias Google's search results. "We provisioned into the deal that there will be no way to influence the core search algorithm," Mayer said.

The companies said they will collaborate on online video search and showcase AOL's premium video service within Google Video, as well as allow Google Talk and AIM instant messaging users to communicate with each other.

"This agreement is key to fulfilling our commitment to realise the potential of AOL's very large online audience," Dick Parsons, Time Warner chairman and chief executive, said in a statement. "A critical piece of this strategic alliance will be our content, which we will be making more accessible to Google users."

Google chief executive Eric Schmidt said: "Today's agreement leverages technologies from both companies to connect Google users worldwide to a wealth of new content. We've also created a simple way for AOL Marketplace advertisers to buy and place search-related advertising across the AOL network. This partnership is an important next step for our companies."

Several analysts gave the deal a thumbs up, especially for Google.

"I don't see it as a strategic technology deal. I see it more as a tactical advantage, especially against Microsoft," Piper Jaffray analyst Safa Rashtchy said of Google's investment amount. "It gives Google a laboratory or testing ground for them to test new ideas about advertising. I don't see the AOL network to be of strategic value to either Google or Microsoft."