free html hit counter December 2005 - Page 4 of 9 - John Battelle's Search Blog

With AOL Deal, Google May Get to Go Public Again

By - December 18, 2005


GooglogoConsider: AOL and Yahoo made hay when Google went public. Both owned substantial stakes in Google due to earlier traffic deals, and both cashed out major paydays after GOOG’s IPO.

Consider also: The success of Ask Jeeves, from the time it tied its revenue fortunes to Google at around $5 a share (July 2002) to the point at which IAC purchased them at nearly six times that. Google did not own a piece of Ask, but given that Ask’s fortunes rose as soon as it did a deal with Google, I bet it wished it has asked for some Ask back in 2002…

So now consider this: Google is not going to make the same mistake. Why invest $1 billion in AOL? Well, should AOL go public, Google stands to profit – a lot. The company knows that by guaranteeing its business to AOL for the foreseeable future, it has in essence guaranteed AOL’s bottom line, providing a healthy earnings forecast for AOL and Wall St., should Time Warner decide to spin its erstwhile child back out as an independent public company.

Will AOL be taken public? My conversations with AOL execs lead me to believe the answer is yes, as long as the numbers look good. This Google deal takes care of that….and why would Google invest in a subsidiary of Time Warner, unless they were promised some kind of liquidity event?

Consider: The strike price for Googe’s investment is $20 billion. Google owns 5% of that, or $1 billion. So let’s do the math (again, watch out here, check my figures…). Google is on track to do more than $6 billion in high growth revenues this year, and it has a market cap of $130 billion. AOL will have far more revenue this year (it did $2 billion this past quarter and more than $8.5 billion last year), but due to the subscription/access business, it is not growing nearly as quickly. But a market cap of $20 billion? On revenues of more than $8 billion? That’s less than 3x revenues!

If AOL goes public and is seen by by Wall Street and others as the equivalent of a cheap ticket to Google revenue, it may well pop into Yahoo like valuations – to $50 or 60 billion in market cap or more. If that happens, Google’s makes a cool $2 billion on its 5% stake – close to what it made when it first went public. And this time, they don’t even have to do a road show….

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Yow. Don't Jump the Shark, Google

By - December 16, 2005

SharkFrom the Times coverage:

Google, which prides itself on the purity of its search results, agreed to give favored placement to content from AOL throughout its site, something it has never done before.

If this is true, AOL will once again be the ramp over which a major company jumps the shark.

Update: Or, is this just a trial balloon?


Update 2 – There’s still time for the deal to fall apart, but it certainly seems set. Saul updates his story here, and even quotes me. From that:

“This is Google’s first test as a chess player in a major corporate battle,” said John Battelle….”They are saying, ‘We will take some of our pawns and block the move to our queen by Microsoft,’ ” he said. “Until now, Google has said, ‘We don’t think about our competitors. We spend all our time building better products for our users.’ “

And more details on how the deal unfolds:

Google has been providing Web search and search ads for AOL since 2002. In the new arrangement, Google will offer promotion to AOL in ways it has never done for another company, two executives close to the negotiations said.

If a user searches on Google for a topic for which AOL has content – like information about Madonna – there will be a special section on the bottom right corner of the search results page with links to Technically, AOL will pay for those links, which will be identified as advertising, but Google will give AOL credits to pay for them as part of the deal. They will also carry AOL’s logo, the first time Google has agreed to place graphic ads on its search result pages.

….Google will also provide technical assistance so AOL can create Web pages that will appear more prominently in the search results list. But this assistance will not change computer formulas that determine the order in which pages are listed in Google’s search results.

Google will also make a special effort to incorporate AOL video programming in its expanding video search section and it will feature links to AOL videos on the video search home page. These links will not be marked as advertising.

An executive involved in the talks said Time Warner asked Microsoft to give AOL similar preferred placement in advertising and in its Web index and that Microsoft refused, calling the request unethical.

Also very very interesting but not that played up:

Under the current arrangement, Google sells all the search ads that appear on AOL’s sites. This year, Google’s revenue from ads on AOL will be roughly $500 million, estimates Jordan Rohan, an analyst with RBC Capital Markets. Of that, Google will pay AOL about $430 million.

Under the new deal, AOL’s sales force will also have the ability to sell search advertising that appears only on AOL’s sites, even though those ads will compete for placement with those sold by Google. AOL’s sales force will also have the right to sell some display advertising that will be placed on the vast network of Web sites for which Google sells ads.

More Details: AOL and Google Now Exclusive, WSJ Claims

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From here (paid as usual):

Time Warner Inc.’s AOL and Google Inc. have entered exclusive negotiations over a deal that would have the search giant pay $1 billion for a 5% stake in AOL, deepening their advertising partnership, according to a person close to the situation.

The talks shut out Microsoft Corp., which has been wooing AOL since January.

As part of the deal, AOL would be able to sell advertising among the search results provided by Google on AOL Web properties. AOL’s sales staff would also sell display ads across Google’s network of Web publishers.

Fascinating: AOL selling display inventory across Google’s network – in other words, AdSense. Hmmm. Hmmm. Hmmm………Now does Google have the right to let AOL sell my pages, if I am an AdSense publisher? Hmmmm. I guess I’d be OK with that if AOL reps know who I am, and what ads are endemic, and why my site works, and all that. But….will they? Or is this a land grab of sorts? Is this Google buying its way into having a real sales force?


Gauging The Size of the Google Economy

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CashA Fortune Small Biz reporter, Justin Martin, called today and among other questions asked one that I did not have a ready answer for. But it seemed like a very good question, and it’d be neat to have an answer. In short, he asked, how big is the Google economy? We bounced it back and forth, and what he meant by that phrase is the aggregate amount of direct economic impact Google has on businesses large and small. Not an easy thing to nail down, but often you can create useful proxies if it’s Friday and you’re trying to avoid real work.

I was thinking that you might take Google’s gross revenue number, which is projected to be more than $6 billion this year, and then the estimated number of AdWords customers, which I realize I don’t have a reliable number for. The last time I wrangled something out of Google was two years ago, when it was about to cross 200,000. So, assuming decent growth (say 25% a year), we’re now at what, nearly 300K (OK, 281K, but for all intents and purposes…).

OK, stay with me. I’m not a quant, which is why I’m doing this in public. I know there are quants out there reading, and there are folks with access to better base case numbers, not to mention better ideas about how to do this.

In any case, if you do the division, you have $6 billion / 300K which equals roughly a $2000 spend per AdWords advertiser, if I’ve kept all my zeroes in place.

OK, so what were the *results* those business got based on that $2000 annual spend?

*That’s* a key stat I wish I knew. The average return on an AdWords investment. Anyone care to speculate?

Sure, OK, I will. Let’s assume that for every dollar they put in, they got more than one dollar back in sales. Say it’s a 10% bump. So that would mean for the $6 billion they gave Google, $600 million in increased sales was created in their businesses. Or, put another way, every AdWords advertiser drove $200 in marginal revenue from their investment in Google.

If that figure is negative, well, Mountain View, we have a problem. If it was 150%, why, I’d like to know that too. Any of you SEO/SEMs out there with a large client base care to give us a clue?

Of course, the other way to measure the Google economy is to simply look at a stock chart….

Senate Blocks Extension of Patriot Act

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Now *this* is good news.

The Senate on Friday rejected attempts to reauthorize several provisions of the USA Patriot Act as infringing too much on Americans’ privacy, dealing a major defeat to President Bush and Republican leaders.

In a crucial vote Friday morning as Congress raced toward adjournment, the bill’s Senate supporters were not able to garner the 60 votes necessary to overcome a threatened filibuster by Sens. Russ Feingold, D-Wis., and Larry Craig, R-Idaho, and their allies. The final vote was 52-47.

Hey, Let's Sue the Interface!

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From Dan Miller at MacWorld:

Walter Ritter is the developer behind pearlyrics, a nifty little Dashboard widget. It did one simple but very useful thing: It searched the Internet for the lyrics to the song you were playing in iTunes, displayed those lyrics on the Dashboard, and copied them into the song’s iTunes Lyrics field. It certainly wasn’t the only lyrics widget out there, but it’s the one that several of us here at Macworld liked.

Unfortunately, pearlyrics is no more. Last week, Ritter received a letter from Warner Chappell Music—“one of the world’s largest music publishers,” its Web site proudly proclaims—telling him to cease and desist. Being a modest freeware developer with no legal budget, he did.

As I say, there are plenty of lyrics widgets out there. Ritter has heard of only one other developer who’s received a similar cease-and-desist letter. So big whoop, you say, a couple of minor-league widget-makers must turn their hands to something else. But I think it’s weird: Why is one of the world’s largest music publishers bothering to go after a couple of lowly widget makers?

..Fred von Lohmann, senior staff attorney at the Electronic Frontier Foundation… has a theory. This may just be “a dry run for a much broader campaign in New Year.” The target of that campaign? Web sites that publish music lyrics.

… von Lohmann isn’t just being paranoid. The Music Publishers’ Association has said it wants to crack down on lyrics sites.

Dashboard widgets are for Mac OS only, but this is an interesting case in that the search engine is being blamed for infringing. So, if this company can sue on this principle, they best sue Google, Yahoo, and MSN next. Right? Right? G*damn assclowns. (Hey, it’s Friday, I’m allowed a rant).

Journal Reports that Google Has AOL Sewed UP

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Now this would have been a very interesting deal to be on the inside of. I can only imagine the back and forth and the stakes being raised. If what the Journal is reporting (Paid reg) is true, somehow Google has outbid/outmanuevered Microsoft. This says a lot about what Google views is important. I can say it in one word: Traffic.

From the brief article:

Time Warner Inc. has entered exclusive talks with Google Inc. over a partnership with AOL, apparently shutting out Microsoft Corp. and other suitors, according to people familiar with the situation.

The news comes following weeks of speculation that AOL would choose to drop Google, its current ad partner, in favor of a deal with Microsoft, which had worked aggressively to try to woo the foundering Time Warner unit away from the Internet search giant.

The contest illustrates how far companies are willing to go to secure a chunk of the quickly expanding market for Internet advertising….

Update: Journal report alleges $1 billion for 5%. That’s a healthy but not crazy $20 billion valuation for AOL. Reuters story.

Google and MSFT Bury Hatchet at Berkeley

By - December 15, 2005

From the AP:

Google Inc. and Microsoft Corp. are setting aside their bitter animosity to back a new Internet research laboratory aimed at helping entrepreneurs introduce more groundbreaking ideas to a mass audience.


Sun Microsystems Inc. also is joining the $7.5 million project at the University of California, Berkeley. The Reliable, Adaptive and Distributed Systems, or RAD, lab was scheduled to open Thursday and will dole out $1.5 million annually over five years, with each company contributing equally.

Staffed initially by six UC Berkeley faculty members and 10 computer science graduates, the lab plans to develop an array of Web-based software services that will be given away to anyone who wants it.

In other news, Yahoo plans to open a NY-based research center, and Google’s expanding in Pittsburgh (via SEW, near CMU).

A Search Panel Podcast

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Last week the MIT Enterprise Forum gathered leaders from GYM (Google Yahoo Microsoft) for a panel discussion. The sold out event is now up as a podcast. From the site:

The panel, led by Safa Rashtchy, includes leaders in Search from Google, Microsoft and Yahoo!, and will be balanced by long-time Search pioneer and researcher, Oren Etzioni of the UW Turing Center.


Urs Hoelzle, Google Fellow, VP of Operations

Gary Flake, Microsoft, MSN Technical Fellow

Eckart Walther, Yahoo!, VP of Yahoo! Search Products

Oren Etzioni, UW Professor, Madrona Venture Group