Saturday, December 24, 2005
We all know the news: Time Warner has agreed to sell a 5% stake in America Online to Google for … $1bilion in cash plus $300 million worth credit for purchasing keyboard based ads from Google. Behind the news the increasing concurrence between MS and Google for controlling the search market and what is more important their by-products, namely on-line advertisement, ad placement in search, ad related location services and without any doubt a long list of yet to be invented products. The first question that comes to everybody’s mind reading the news is why so much money. Why is Google going to pay such amount of cash for an ailing company that is in straight decline? The answer to that, beyond strategic considerations comes straightforward: AOL is responsible for a 10% of Google revenues in ads, roughly $540 Million a year. The second motive is possibly strategic: in the war with Microsoft, Google just cannot afford to loose AOL and a 10% of its revenues at the same time. But, as in many cases, the devil is in the details. Did you know that MS rejected a similar agreement with Google because MS considered it “unethical”, wow ! that sounds interesting, especially coming from MS … Basically Google agreed to give AOL ads special placement – this is not going to be any longer an egalitarian system – and AOL will be able to place all types of ads, including banner, display, … across all Google network but the main search site – so we’ll see banners and pop-ups in Google video, etc… In a way Google is gaining a winning position in the market and loosing … part of its soul. Is that an inevitable consequence of market economies? From a more global perspective is one more – very clear this time – sign of where the advertisement money is going for ad placement. From the point of view of individual companies: Will Google succeed despite of this? What will MS do next (it only has a mere 7.2% market share compared to 48% of Google or 22% or Yahoo)? What about these small companies that insist on tagging and blogs, like Technorati ? – A new exiting year ahead !!!