Google to Buy Stake in AOL

It appears Google is preparing to buy 5% of AOL for $1B…

Adam and Ro have both addressed the ethical consideration of the deal — which require that Google give AOL content special placement on their search results page as well as support in enhancing the page rank of AOL content.

But, there are a few other points worth considering…

- Assuming there are no longer-term conditions on the deal, this would put AOL’s value at about $20B. While it difficult (for me, at least) to determine the value of AOL (they are part of Time Warner, and the income statement and balance sheet don’t break out numbers), this seems a tad bit high. Last I heard, AOL was probably worth about $12-15B, including several billion in long-term debt. Then again, it can be argued that AOL and Time Warner’s media business would both be valued higher if they were broken up, and Google was forced to pay a premium to ensure they would beat out Microsoft for the deal;

- A less discussed part of the deal is AOL’s provision of video programming to Google’s video library and search. While this will likely have little impact on Google’s business short-term, it does beg the question of whether this partnership was a first-step in a larger relationship between the web giant (GOOG) and the media giant (TWX). Perhaps Google recognizes that some of their biggest compeititors — Yahoo! comes to mind — have much better relationships with content providers than they do;

- Speaking of video content, rumors have been swirling of a partnership between Google and Comcast in recent months. Sharing a bed with a major content provider and a major carrier provides some interesting speculation on the long-term plans of a company that is arguably the most profitable advertising company in the world.

While the short-term benefits to Google are a quick and easy jump into display advertising with a reputable and established provider, the longer-term incentives of working with a company like AOL is it’s ties to the Time Warner media business. I’d be willing to bet that this is just the beginning of the Google - Time Warner relationship…