- The Washington Times - Monday, December 19, 2005

It’s the world’s most popular search engine company and is poised to expand a lucrative partnership with America Online Inc. that froze out Microsoft Corp. in the process.

Its 2005 highlights include a soaring stock price, enhanced e-mail, video and mapping services, and explosive online-advertising growth, but Google Inc. is not quite the giant many people think, technology analysts said.

“Hype makes it very difficult for people to understand markets,” said Susan Feldman, research vice president for content technologies at IDC in Framingham, Mass. “Google is not Microsoft, at least not yet.”

AOL, based in Sterling, Va., is Google’s biggest customer, accounting for nearly 10 percent of its revenue.

Enhancing an existing three-year relationship by continuing to power AOL’s searches and reportedly agreeing to buy a 5 percent stake — valued at $1 billion — in the Time Warner Inc.-owned company made sense, especially because Microsoft was attempting to form its own exclusive agreement with AOL, analysts said.

“I’m not surprised that Google upped the stakes by making an investment in AOL — what’s amazing to me is they thought it was worth $1 billion,” Charlene Li, principal analyst at Forrester Research Inc., wrote in a blog entry responding to the proposed deal.

“I think losing AOL wasn’t so much a financial issue as it was one of ego — there was no way Google was going to let Microsoft beat it at anything as high-profile as a major partnership.”

Todd Chanko, an analyst for JupiterResearch in New York City, said people often think Google is bigger than it really is.

“People need to remember that if AOL were a stand-alone company, it would be two to three times the size of Google” in terms of revenue, he said. “Google is growing faster than AOL, but AOL is still bigger.”

The deal merely strengthens Google’s ties to Time Warner, which invested $22 million in Google stock after the company’s initial public offering last year that resulted in a $1 billion windfall, Mr. Chanko said.

Representatives from AOL and Google have refused to discuss the deal, which Time Warner’s board is expected to approve today. The agreement reportedly includes the Mountain View, Calif., company highlighting AOL services as sponsored links and integrating AOL’s video clips into the Google Video service.

“We believe 2006 is going to be the year of video over the Web,” said Allen Weiner, research director at Gartner Inc. “AOL is providing a venue for ads and Google is positioned to take advantage of that, and that’s going to be huge.”

The enhanced partnership will not place Google ahead of Yahoo Inc. as the premier search-portal media company, but does raise questions about Microsoft’s status in those markets, Mr. Weiner said.

“The future of MSN to me is a big question mark,” he said.

Adam Sohn, a Microsoft spokesman, said the Redmond, Wash., company would like to surpass Google and Yahoo to become the world’s most popular search engine, but noted that the MSN search tool is less than a year old and still being revised to compete in the “built-from-the-ground-up search engine wars.”

Microsoft remains interested in partnerships that could make its search and online ad offerings more relevant and will continue to invest in those areas, Mr. Sohn said.

Google’s year has resulted in some miscues. The company’s plan to digitize books has resulted in lawsuits from the Association of American Publishers and the Authors Guild, and Google still trails Microsoft and others in its e-mail and instant-messaging services, analysts said.

“They need to learn how to play nice with a range of constituencies,” Mr. Chanko said.

Google stock was trading at more than $446 per share yesterday , but closed down more than $5 to $424.60 on the Nasdaq Stock Market.

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