Google, AOL Add Mobile, Video with Search Deal

Google and AOL refresh and extend their search deal to cover mobile search and video for the next five years. Google beat Bing, Yahoo and others for AOL's hand.

Google and AOL Sept. 2 inked a fresh five-year deal in which Google will power the search results on AOL's Websites accessed from computers and mobile devices.

Financial terms were not disclosed for the global deal, which includes a revenue-sharing arrangement per each search. Some analysts believe Google is sharing 90 percent of the ad revenue generated from text ads paired with search results on AOL.

The new deal adds provisions for mobile search and Web video. Specifically, Google's YouTube video-sharing site has agreed to host AOL's video content, according to a statement from AOL.

Google will also serve search queries logged on AOL Websites from mobile devices, such as smartphones and tablet computers.

This dovetails well with AOL's "mobile first" strategy to create mobile versions of its desktop and Web offerings and products that launch first on mobile devices.

Jefferies and Co. analyst Youssef Squali, who believes AOL will take 90 percent of the ad share from Google-powered searches, said the inclusion of mobile, the YouTube partnership and "slightly better economics bode well for AOL."

"We believe that the resulting search experience from this new deal is likely to slow down the rate of subscriber decline for AOL," Squali said in a research note Sept. 2. "In addition, AOL will be able to feature its own content alongside search and improve the branding, awareness and traffic across its own content network."

Squali predicted the new deal will help AOL add $20 million to $40 million in 2011, adding 10 cents to 20 cents of earnings per share next year.

The pact extends a deal Google and AOL have had together since 2005, when Google acquired a 5 percent stake in AOL worth $1 billion and agreed to provide the search for AOL's Web properties.

Google said in a 2008 SEC filing that it feared its investment in AOL was impaired and sold its stake to Time Warner in July 2009 for $283 million.

Google's investment valued AOL at $10 billion in 2005; the sell-off meant AOL is worth $5.66 billion.

AOL was spun out of Time Warner as a separate company last December and has been working to evolve into an ad-supported media company that competes with Google, Yahoo, Facebook and Twitter.

Google and AOL's deal was set to expire Dec. 19, and many pundits wondered whether AOL might choose Microsoft Bing or another search provider over Google.

Refreshing the deal with Google was apparently too good to pass up for AOL Chairman and CEO Tim Armstrong, a former Google sales guru who is trying to help the company evolve in a world ruled by Internet advertising.

"Today is another important step in the turnaround of AOL," Armstrong said in a statement. "AOL users will be getting a better search and search ads experience from the best search company in the world-Google."