Google Nabs AOL Europe Deal

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Google expanded its relationship with AOL, announcing a deal yesterday to replace rival Yahoo's Overture Services unit as paid search provider for AOL Europe.


Google already provided Web search for AOL sites in the United Kingdom, France and Germany. It now also will provide paid listings on those sites, which previously showed Overture ads for the past four years. AOL Europe and Overture had expanded their deal in February 2003. Financial terms of the Google-AOL Europe pact and its duration were not disclosed. A Google spokesman said the deal is for multiple years.


AOL and Google have forged a deep relationship in the United States, with AOL accounting for 13 percent of Google's sales in the first half of the year. Google, in turn, accounted for 33 percent of AOL's ad sales in the second quarter.


The defection of AOL Europe, which has 6.3 million members, is a blow to Overture, which has been mostly successful in holding together its partnerships after Yahoo acquired it. In a statement, Overture hinted that Google offered AOL Europe a revenue share that made the deal untenable for Overture.


"Overture engages in distribution partnerships that make strategic and financial sense for our business," the company stated. "In the case of AOL Europe, these criteria could not be met. And while Overture aggressively pursues distribution agreements, we are absolutely willing to forgo those that do not meet these performance thresholds."


AOL Europe expands Google's international reach. Google's AdWords program is available in 41 languages. More than half of its search traffic comes from non-U.S. markets.


International sales are expected to be a big source of growth for paid search, since most foreign markets trail the United States in Internet adoption. International operations accounted for 31 percent of Google's sales in the first half of 2004, and it expects that share will grow in future years.


Mark Mahaney, a stock analyst with American Technology Research, said in a research report issued yesterday that he expects international growth rates in search to be two to three times those in the more mature U.S. market.


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