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September Surprise: AOL Re-Ups and Expands Search Agreement With Google

In a surprisingly quick and even stealthy move, AOL has renewed and expanded its search agreement with Google, even though many had expected there to be more-competitive bidding throughout the fall to win the deal.

The five-year partnership to provide search technology and search advertising by powering AOL Search is more wide-ranging than the one it replaces, also including improved search products, global search, mobile search and also a video-distribution arrangement with YouTube, which could evolve over time to include content partnerships.

“We have tried to make a deal that has 100 percent alignment on what we each do best,” said AOL CEO Tim Armstrong in an interview last night with Boomtown. “At the end of the day, Google checked all the boxes.”

The search partnership between AOL (AOL) and Google (GOOG)–the third since 2002 actually–was set to run out December 19.

Thus, AOL had been talking for months with a number of new partner possibilities, especially with Microsoft (MSFT) about using its Bing search service for AOL.

Microsoft has been trying to improve its market share with the innovative Bing and has made great strides.

But, despite a valiant effort so far, it is still the No. 3 search engine, with about 11 percent of the market share, according to the latest comScore (SCOR) report for July, compared to 66 percent for Google and 17 percent for Yahoo (YHOO).

Adding AOL would have been a plus for Microsoft, since it has a 2.3 percent share.

But Armstrong said a deal was worked out early once AOL got what it wanted from Google, which certainly had the inside track in terms of experience in working with AOL.

Nonetheless, AOL had started the process of re-evaluating who it would pick to serve its search needs late last summer and had planned for a process to last closer to when the Google deal expired.

In April, Armstrong said, AOL re-engaged with all potential partners worldwide, which he said numbered a half-dozen.

He declined to name them, but sources said the other companies included Yahoo, as well as China’s Baidu.

The talks with Google were turbocharged when Armstrong–who, ironically, was one of the key Google execs who negotiated the first AOL deal, when he headed U.S. ad sales there–met with Google CEO Eric Schmidt and co-founders Larry Page and Sergey Brin at the Allen & Co. conference earlier this summer in Sun Valley, Idaho.

The deal moved quickly after that, with Armstrong wanting AOL to get access to the search innovation pipeline at Google, rather than just receive a more basic product.

He would not say if Google guaranteed search ad revenues in the deal, but sources said it has similar terms to the previous deal, which did include them.

The video part of the deal puts AOL content more prominently on YouTube and presumably it will be better programmed. AOL and Google will share ad revenue on the premium videos.

The mobile details are still being worked out, but will likely be served via Google’s mobile technology from its AdMob acquisition.

Armstrong admitted Google had the advantage from the start, especially since it knew how AOL Search performed, although early talks between the companies were initially rocky.

Perhaps that was due to the massive writedown in 2009 of the $1 billion investment Google–a key part of its previous search deal–had made in 2005 for a five percent stake in AOL, when it was still owned by Time Warner (TWX).

Armstrong also noted he wanted to avoid a lot of attention and uncertainty a bidding war would surely create.

“We had a no-drama policy on this,” said Armstrong. “And, as it turned out, this was not a single, not a double, not a triple, but a home run for us.”

Here is a detail-free–with promise of more to come–8-K filing AOL submitted to the Securities and Exchange Commission on its new deal with the Silicon Valley search behemoth:


AOLInc

Here is the official press release on the new Google-AOL deal:

AOL AND GOOGLE RENEW AND EXPAND GLOBAL PARTNERSHIP

MOUNTAIN VIEW, Calif. and NEW YORK, NY–September 2, 2010–Google Inc. (NASDAQ: GOOG) and AOL Inc. (NYSE: AOL) today announced a five-year renewal and expansion of one of the largest and longest-standing partnerships in Internet history. The global alliance, which has at its core Google’s provision of search services to AOL’s content network and properties, in exchange for a revenue-sharing arrangement between AOL and Google, will be expanded to include mobile search and YouTube.

“Today is another important step in the turnaround of AOL,” said Tim Armstrong, AOL’s Chairman and Chief Executive Officer. “AOL users will be getting a better search and search ads experience from the best search company in the world–Google. After nearly a decade-long partnership in search, we’re looking forward to expanding our global relationship to mobile search and YouTube. All aspects of our partnership will be improved by this deal.”

“We’re excited to deepen our partnership. This agreement combines Google’s expertise in search and advertising with AOL’s strength in online content,” said Eric Schmidt, Chairman and Chief Executive Officer of Google. “It’s particularly exciting to see our relationship expand into video and mobile. These areas are now at the heart of users’ online experiences and at the core of both of our businesses.”

The partnership includes a broad range of features that will improve and expand the products and services offered to consumers.

· Search Products: Google will provide AOL with additional features and enhancement to its leading Web search products that will improve the consumer search experience across AOL’s network of sites.

· Advertising Products: Google will provide AOL with best-in-class ad formats, giving AOL consumers a better, more relevant ad experience.

· Mobile Search: As AOL renews its focus on mobile apps and content, the companies will work together to expand the alliance to cover mobile search.

· YouTube: AOL and YouTube have agreed to a content partnership that will bring AOL’s video content to YouTube.

· Global Focus: The alliance is international in scope and will provide improved experiences to AOL’s worldwide audience.


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