InvestorGeeks

Last week we heard the news that Google would pay $1 Billion for 5% ownership in AOL. Here are some bullet points from Google’s press release:

• Creating an AOL Marketplace through white labeling of Google’s advertising technology - enabling AOL to sell search advertising directly to advertisers on AOL-owned properties;
• Expanding display advertising throughout the Google network;
• Making AOL content more accessible to Google Web crawlers;
• Collaborating in video search and showcasing AOL’s premium video service within Google Video;
• Enabling Google Talk and AIM instant messaging users to communicate with each other, provided certain conditions are met; and
• Providing AOL marketing credits for its Internet properties.

The Future of Instant Messaging?
This deal ensures that Google will continue to power AOL’s web search (which was reportedly responsible for 11% of Google’s revenue the first half of 2005). The hot topic of the moment though seems to be the future interoperability of the GoogleTalk and AIM instant messaging networks.

While having the GoogleTalk and AIM networks working together is nice. Having ALL IM networks working together is the Holy Grail. Google and AOL will likely connect their networks in the same way that 3rd party applications like GAIM and Trillian do, requiring the user to create accounts on both services. This method works now, but going forward it seems pretty silly. For instance, I don’t have to sign up for a Comcast account to email my mother. Let’s hope that Google and AOL will work towards a truly open protocol for sharing IM networks.

Show me the Money
All this chat about chat, but where is the money? AOL makes money by showing users ads. Every time AIM is launched, users are greeted with a start page linking to other AOL content (and ads). The way Google makes money is a little trickier. Google’s advertising scheme is based on the idea that the more they know about us, the better they can target their ads. GoogleTalk keeps track of all of your conversations and uses this information to profile you. Presumably, this leads to better targeted ads, which leads to you clicking on Google ads more often.

Opening up the network seems like a bad move for AOL then. While Google will gain access to AOL users who convert to GoogleTalk and the chat histories of AIM users who chat with GoogleTalk users, AOL stands to simply lose ad views. There has to be some benefit to AOL. Any ideas? This should shake out over the next few months.