AOL has opted for Google’s high quality. Google gets access to AOL’s high quantity.
That sums up yesterday’s blockbuster announcement by the two companies: Google has been chosen to power AOL Search as well as to provide syndicated pay-per-click sponsored results through its AdWords Select program. The sponsored results currently appear in the top three positions above the regular AOL Search results.
AOL’s previous sponsored results supplier, Overture Services, reached the end of an extension of an agreement between the two companies without managing to negotiate a renewal. Late Tuesday night, Overture announced that its contract with AOL had not been renewed. The Google announcement was released Wednesday morning, quashing speculation that AOL might take its sponsored results in-house.
Another supplier left in the lurch by the switch is Inktomi, which had been the main provider of whole web index search for AOL. Inktomi’s logo remains on the AOL Search pages for now; the Google deployment takes effect this summer on all AOL properties including Compuserve and Netscape.
AOL’s decision seems to send a clear message that it has decided to take the quality of content seriously. Statistical reports were starting to show google.com taking search traffic away from major portals. In the search category, Google had vaulted past AOL Search. Google web search results are also displayed on Yahoo and Sympatico-Lycos, a portal owned by Canada’s leading Internet Service Provider.
Those watching the pay-per-click advertising space are particularly interested in this deal. Until this announcement, Overture Services claimed the lion’s share of the pay-per-click ad market. It still has partnerships with Yahoo, thanks to a recently-signed three-year deal, as well as Lycos, MSN, and AltaVista. But Google AdWords Select is now a close second and gaining fast.
Few expected this outcome, since conventional wisdom had it that Google was becoming too much of a threat to potential portal partners. In hindsight, this theory made little sense; Google, while adding a few new services, is essentially a technology company. AOL Time Warner is a global media company with key, quasi-monopolistic network, broadcast and infrastructure assets. Instead of being threatened by Google, AOL Time Warner evidently believed that Google Search could contribute to an improvement in the quality of the AOL side of the company, keeping more users satisfied with the service.
From the consumer’s standpoint, this seems like a victory as it signals a commitment by a major portal to toss out bland search results in favor of higher quality. Inktomi was good, but certainly not as good.
From an advertiser’s point of view, Google AdWords Select becomes a more important option. Any small to medium-sized advertiser who wants significant targeted exposure on AOL will need to familiarize themselves with Google AdWords Select. Existing AdWords Select advertisers will be pleased that they can go full throttle on their better-performing keywords given the increased exposure that comes with AOL. Those in highly competitive fields may get involved in more bidding wars. Those with marginally performing AdWords Select campaigns may find that the added volume does them no good. Those who do well on lower-priced keyphrases will be particularly pleased with the additional exposure.
Sheryl Sandberg, Director of Google’s AdWords program, was understandably elated with the AOL deal. “I’m personally excited, and Google is excited,” said Sandberg. “The bottom line is we’ll be serving more ads to the consumer search marketplace. With the announcement that Google will also power AOL Search, Google now clearly sets the world standard in web search.”
Sandberg conceded that recent editorial guidelines for advertisers were partly influenced by the AOL partnership. “In laying out the ground rules for our advertisers, we’ve tried to set an industry standard,” she said. “An industry standard has to be enforced on all advertisers to make the playing field level for everyone.” Although Google is not releasing information on the size of the editorial staff, Sandberg stressed that “Google is in the fortunate position to be able to attract top quality people to this job.”
Although quality has gone up a notch, the search landscape has also become more monopolistic. Two other contenders for best quality web index, FAST Search and Ask Jeeves’ Teoma, seem likely to be given the once-over by portal partners or other suitors determined to put the brakes on Google’s industry dominance. Those who have had lots of chances already – such as Inktomi, AltaVista, and LookSmart – are in deeper trouble than ever, at least as far as the consumer search marketplace goes.
With this deal, one gets the sense that Google has come of age. The AOL contract loss by Overture, and the new deal with Google, was the top story on some radio and TV business news broadcasts Wednesday morning (mainly because Overture’s stock was down over 35% on the day). Of course, the business news only reports a story if someone’s stock goes up or down; this case was no exception as Overture’s loss was the preface to the Google mention. Given the ever-increasing prospects for a Google IPO, we can expect to hear Google’s name called many more times on the business news.