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Plan Unveiled for Google to Buy Stake in AOL

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Plan Unveiled for Google to Buy Stake in AOL

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Plan Unveiled for Google to Buy Stake in AOL

Plan Unveiled for Google to Buy Stake in AOL

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Time Warner's America Online and Google announce an agreement in which Google will buy a 5-percent stake in the Time property for $1 billion. The deal marks a victory for Google over rival Microsoft, which was also vying for a piece of AOL and the Internet search business.

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

America Online and Google have announced an agreement. Under the plan, Google would buy a 5 percent stake in AOL for $1 billion. AOL is owned by Time Warner. With this deal, Google scores a victory against rival Microsoft. That company was also vying for a piece of America Online and the Internet search business. NPR's Laura Sydell reports.

LAURA SYDELL reporting:

There's a 1958 B movie that might come to mind these days when thinking about Google.

(Soundbite of "Beware! The Blob")

Unidentified Man: (Singing) Beware of the Blob. It creeps and leaps and glides and slides across the floor, right through the door and...

SYDELL: The film was called "The Blob." It's about an alien life-form that eats everything in its path and threatens to take over the Earth as it grows in size. Google is growing, too. There's Google Maps, Desktop Search, Wi-Fi, a shopping service; the list goes on in Google's quest to dominate the online world. Now the giant search engine has taken a bite out of America Online.

On first pass, it might seem odd that Google is paying $1 billion for stock in a company with declining subscription rates and only about 8 billion in revenue. But this was a case of eat or be eaten, says John Battelle, author of "The Search," a book about Google and its rivals. The search giant had to keep Microsoft out. Google had been providing AOL with search technology already; revenues from that partnership account for some 10 percent of Google's business.

Mr. JOHN BATTELLE (Author, "The Search"): If Microsoft won AOL's business, it would be a much more formidable competitor. And I think Google was willing to do any number of things that perhaps went against its original nature in order to make sure that it retained AOL as a partner.

SYDELL: For Microsoft, this will prove to be a great loss. The software company, through its Internet portal MSN, has been vying for a larger piece of the online marketplace, says Dustin Rector, an analyst with Tier 1.

Mr. DUSTIN RECTOR (Analyst, Tier 1): This keeps MSN out of the 20-plus million subscribers that AOL has. And MSN needs those eyeballs and that traffic in order to start garnering some momentum from the online search advertising space.

SYDELL: Right now, says Rector, Microsoft is a distant third in the online world, behind Google and Yahoo! Besides a billion-dollar payment to AOL, Google is reportedly making some other changes as part of the deal. AOL gets more than money. Google will send more traffic to AOL's free ad-supported Web sites, and AOL will be able to sell ads on Google's extensive networks. In fact, the search company, which has been known for the low-key graphics of its home page, may be about to make a change. Flashy ads may start appearing. But that was probably inevitable anyway, says author John Battelle.

Mr. BATTELLE: I think it's Google growing up quite quickly, probably faster than it'd like to, in terms of having to play the way all of its competitors play.

SYDELL: However, Battelle says Google may still find ways to be more low key than its rivals. But there is a dark horse in this race. Billionaire investor Carl Icahn has been trying to stop the deal. He believes that Microsoft, Yahoo! or eBay would be better partners for AOL than Google. Icahn has been organizing a proxy battle and wants to split off AOL. However, Icahn only owns a 3 percent stake in Time Warner. David Edwards, an analyst at American Technology Research, thinks Google is a better partner because its services complement rather than compete with AOL.

Mr. DAVID EDWARDS (Analyst, American Technology Research): So if you look at aol.com and MSN.com, they're both offering up a large array of content for their users, whereas Google is really coming at it from a different perspective.

SYDELL: Rector and other analysts agree that for Google, this deal is a good move, making it an even more formidable force in the expanding online world. Laura Sydell, NPR News, San Francisco.

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