AOL-Google deal sours MS hopes

The deal, in which Google will invest $1 billion for a 5 per cent stake in AOL, will also significantly expand AOL’s advertising opportunities on Google sites, among other things. The turn of events shows just how much Google — hotter now than Netscape was nine years ago — has supplanted Microsoft as the force to be reckoned with in technology. And it raises questions about Microsoft’s stated goal of becoming the leader in Internet searching, as well as about its emerging plans to offer more online services under a new brand, Windows Live.

‘‘I thought Microsoft would pay just about anything to get this,’’ said David B. Yoffie, a professor at Harvard Business School. For Microsoft, he said, ‘‘AOL was the single best way to gain market share’’. Yet Google found a way to trump Microsoft’s hoard of cash, in part because losing to Microsoft was a strategic risk. Yoffie characterised the deal as ‘‘crucial and purely defensive’’ for Google because it ‘‘prevents Microsoft from being credible in search’’. For years, Microsoft and its chairman, Bill Gates, won business from AOL and many others with money, power, technology and a presumed dominance of technical standards. For many Internet companies, it appeared to be the safest partner (despite continuing regulatory scrutiny of its business practices), much as IBM was considered the surest bet for computers and information technology by a generation of corporate managers. But for Time Warner, it was Google that appeared to be the safe choice in uncertain times.

Google’s search technology has been the leader in innovation, its advertising network has been a volcano of cash for AOL, and its brand is the hottest of all Internet companies. — NYT