Time Warner Inc. and Microsoft Corp. are close to a deal to form an online-ad service rival to Google Inc., people familiar with the negotiations told The Wall Street Journal. Under the proposal, AOL would drop Google as its primary provider of Internet-search services and adopt Microsoft’s MSN service, the paper reported. Currently, AOL relies on Google's search-engine, and Google gives AOL a cut of the advertising revenue generated by AOL customers. Last year, Google turned over $300 million in revenue to AOL. Their current contract runs well into 2006.
PaidContent says the Wall Street Journal has more, although you can’t read it unless you are a subscriber. They say:
The deal would combine advertising-related assets, with minimal, if any, money changing hands…and of course, AOL would drop Google for search ads and use MSFT.
The deal would be done before year end, though there is a chance Google might still come in…
Another set of negotiations are over creating a joint ad sales force that would sell online ads across both the AOL unit and Microsoft’s MSN, while keeping the two online services under control of their respective owners.
The New York Times runs down the negotiations, saying that this was always about who would drive AOL’s search, and that talks only briefly escalated into mergers and aquisitions. Google’s primary bid was to give AOL more of what it is already getting:
By this account, Google, which values its neutrality, is making proposals that do not involve an investment in AOL at all. It would offer to give AOL an even greater share of the revenue - currently about 80 percent - from search-based advertising placed on AOL sites. Google would also find ways to drive traffic from its sites to AOL.com.