Popular online search engine Google won a key new customer Wednesday, America Online, the world's largest Internet access provider.
The deal is a coup for the fast-growing Mountain View company, which will provide searches for AOL's 34 million members. But even more important for Google, the valley's best-known private company, the deal turns Google into a key player in the paid-search business, about the only form of online advertising that still makes money.
Google is widely expected to go public within the next year and has been expanding its business strategy beyond non-commercial search. In February, Google began syndicating its pay-for-placement service, which allows businesses to place links alongside regular search results.
Google first snagged Internet access provider EarthLink from paid-search leader Overture Services, and dealt Overture a second blow Wednesday by taking its AOL business away. Overture's stock fell 35 percent to $21.99 Wednesday.
The multi-year deal only intensifies the turf battle between Pasadena-based Overture and Google. Last week, Yahoo signed a three-year deal to make Overture its paid-search partner, but Google continues to provide Yahoo with other key search services, at least until June when the contract expires. Overture has also sued Google, alleging patent infringement.
News source: SiliconValley.com
The deal is a coup for the fast-growing Mountain View company, which will provide searches for AOL's 34 million members. But even more important for Google, the valley's best-known private company, the deal turns Google into a key player in the paid-search business, about the only form of online advertising that still makes money.
Google is widely expected to go public within the next year and has been expanding its business strategy beyond non-commercial search. In February, Google began syndicating its pay-for-placement service, which allows businesses to place links alongside regular search results.
Google first snagged Internet access provider EarthLink from paid-search leader Overture Services, and dealt Overture a second blow Wednesday by taking its AOL business away. Overture's stock fell 35 percent to $21.99 Wednesday.
The multi-year deal only intensifies the turf battle between Pasadena-based Overture and Google. Last week, Yahoo signed a three-year deal to make Overture its paid-search partner, but Google continues to provide Yahoo with other key search services, at least until June when the contract expires. Overture has also sued Google, alleging patent infringement.
News source: SiliconValley.comBut underscoring the strength of its business, Overture raised its full-year 2002 forecast, predicting about half a billion dollars in revenue.
No financial details were released about the AOL deal, but Google Chairman and Chief Executive Eric Schmidt called it a revenue-sharing model.
''This is an important endorsement of our advertising model and the way our customers view us,'' Schmidt said. He downplayed the speculation of an initial public offering, but said, ''Our business outlook is very good and this AOL deal will help us.''
Several analysts said Google needed a high-profile partner to boost its paid-listing business, which remains only a fraction the size of Overture's, while AOL hopes to leverage Google's immense popularity as a search engine to boost its business.
''They both got something out of the deal,'' said Safa Rashtchy, an analyst with U.S. Bancorp Piper Jaffray. He estimated Overture, however, still retains about 80 percent of the paid-search business.
Unlike Overture, an all-commercial placement business, Google has spent most of its efforts on building a business based on returning relevant search results.
But as online advertising collapsed, some of the Internet's biggest companies have begun selling ads to appear next to search results.
The practice has been controversial, since the paid listings are given prominent placement and critics say often are not clearly labeled as advertising, which is confusing to Web users.
Overture allows advertisers to bid for best placement; Google uses the bid process, too, but considers relevancy and popularity, measured by click-throughs, as factors.
Google, which hired Schmidt, the former Novell CEO, in August, is among one of the valley's few remaining Internet growth stories.
It has doubled the number of employees to 380 in the past year, and is searching for new headquarters. After announcing it was hiring on its Web site, résumés flowed in at the rate of 1,000 a day. And its popularity among people who search the Web -- the No. 2 online activity after e-mail -- was underscored when ''The West Wing'' character Josh in a recent episode suggested a colleague use Google to do a search.
Google's ability to combine highly relevant search results and a money-making proposition for cash-starved Internet companies is a powerful business model, said Danny Sullivan of Searchenginewatch.com.
''It's an easy all-in-one solution,'' Sullivan said.
But even as Overture's stock price plummeted after the announcement, Rashtchy said Overture still controls 80 percent of the portal and non-portal paid-search business. ''This is all overblown,'' he said.
Kaufman Bros. analyst Paul Kim said while the AOL deal puts Google in the mainstream of paid search, the company remains ''a barnacle on a whale'' when compared with its much larger partners, casting doubt on the company's influence in deal making.
The biggest loser may be Foster-City based Inktomi, which is also being replaced by Google as a search provider to AOL's main site and its CompuServe arm.
While disappointed, Inktomi's AOL contract represents less than 10 percent of Inktomi revenue, a spokeswoman said.
Commenting has either been disabled on this article or you are not logged in. Click here to login or register, its free!
Note: Anonymous commenting is disabled in order to keep the quality of responses to a high standard.