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In an apparent blow to Microsoft Corp., search giant Google Inc. is expected this week to announce its won a five-year-long extension of an important advertising deal with America Online Inc.
According to various published accounts, AOL, the online division of Time Warner Inc., has agreed to use Googles advertising technology for another five years.
In return, Google will invest $1 billion into AOL, and therefore own a 5 percent stake in the second most trafficked of the Internets portals.
Google and AOL are expected to confirm the deal Tuesday, The New York Times reports.
Up until a few weeks ago, Microsoft had been in the running for the same contract Google has apparently won, according to the reports, which has led commentators to raise the rumored deal to milestone status.
They say Google, not software king Microsoft, emerges as the leading force to be reckoned with when it comes to information technology.
Google is perhaps Microsofts biggest rival right now. No longer content to provide just Internet search, Google has begun delivering computing software that competes with some of Microsofts successful lineup.
“What this deal means to Microsoft is that Google is a formidable player that can outmaneuver it and maintain its market position,” John Zappe, an analyst with research firm Classified Intelligence, wrote Monday. “What it means to the ad industry is to show how far Google is willing to go.”
So supposedly losing out on a high-profile, high-dollar value contract to a major rival makes the sting of defeat even worse for Microsoft.
The rumored deal means Googles dodged a bullet of sorts by maintaining perhaps its biggest advertising relationship.
The ads Google distributes throughout AOLs Internet fiefdom amount to about a tenth of Googles revenues.
Representatives from AOL, Microsoft and Google each said they wouldnt comment on market speculation.
The impact on Microsoft is the subject of much debate among industry watchers.
The consensus is bad news for Microsoft.
Winning the deal with AOL means Microsofts recently redone advertising technology would have experienced a major boost.
A deal with AOL means Microsoft gets an instant audience of tens of millions for its own Internet advertising system, which has had trouble denting Googles strength in winning huge advertising contracts.
A relationship with AOL would have also boosted traffic to Microsofts Internet portal, which is becoming increasingly important to the company.
In a nod to Googles growing threat, Microsoft earlier this year said it plans to use its Live.com Internet portal to deliver more of its software, including versions of its flagships Word and Windows.
Thats a big change in how Microsoft sells its software; usually its stored on a compact disk and on a retail store shelf.
The expected deal also spotlights AOLs elite status.
At one point, Yahoo Inc., the No. 1 trafficked of the Internet portals, and U.S. cable operator Comcast Corporation were in the running for the same 5 percent stake.
But both backed out for various reasons. The interest level serves to spotlight AOLs elite status.
Google is reportedly gaining a piece of a company in transition. With its dialup and broadband Internet divisions foundering, AOL is making a big bet on its ad-supported Internet portal of services.
In the last few months, it started giving away what were once subscription services.