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Google in talks to buy 5 pct of AOL

Web search leader Google Inc. (NasdaqNM:GOOG - News) is in exclusive talks to buy a 5 percent stake in Time Warner Inc.'s (NYSE:TWX - News) AOL Internet unit for $1 billion, a source familiar with the matter said on Friday.

A deal would shut out Microsoft Corp., which was seeking its own arrangement.

Under the terms of the proposed deal, which could close within days, Google would continue to provide AOL with its paid search advertising technology for five years, the source said.

The deal would allow AOL to sell display and banner advertising to other Web sites using Google's ad serving technology, the source said.

AOL accounts for from 2 percent to 4 percent of Google's revenue on net basis, analysts have said.

Microsoft had been negotiating to get AOL to use its search technology instead, which would have almost immediately given the software giant a huge presence in its fledgling paid search business.

Google, and to a lesser extent Yahoo Inc., have enjoyed dramatic growth in their search advertising businesses over the past year. The companies generate revenue each time a Web user clicks on text advertisements that run alongside Internet search results.

A deal with AOL would set the stage for Google to expand into display advertising, taking dead aim at Yahoo, which is entrenched in both paid search and display advertising. Together the different types of advertising make up a market of roughly $12 billion annually.

AOL is seen is a critical swing factor on search technology traffic among Internet media rivals Google, Microsoft and Yahoo, just as it once was on online advertising, a category it practically invented in the early 1990s.

AOL made surfing the Internet and chatting online a household phenomenon. But it has been a drag on Time Warner's stock as it has lost millions of dialup Internet subscribers since the merger of America Online and Time Warner in 2001.

Resource: Yahoo

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