What’s the added value AOL and Google can bring to one another?
Is a 5 percent stake in AOL worth $1 billion? That would put the total value of AOL at $20 billion. As AOL has approximately 20 million subscribers, each AOL subscriber is valued at about $1,000. Clearly, this is much more than the ISP revenue one could attribute to an AOL member, even at broadband rates. At $25 per month, it takes 40 months just to generate $1,000 in cash flow. And obviously, it costs some money to run an ISP.
We must also remember not all AOL subscribers use AOL Search or the internal search box in the AOL software. Many use Google, Yahoo, MSN, or even Ask Jeeves as their preferred search engine. Realistically speaking, the value of the AOL searcher to Google should be based on those who actually search.
To conduct this analysis, I pulled up the search query rankings. For example, Nielsen//NetRatings’ MegaPanel puts AOL’s monthly search volume at 368 million for October 2005. That’s each AOL member searching 18.4 times per month, on average. Even if a user clicked on a PPC (define) search link every time (which is unlikely because many searches aren’t commercial in nature) and we use a $0.50 CPC (define), total revenue generated from the average AOL member is $9.20. A more reasonable estimate might be $2.00.
Surely, then, the billion-dollar decision was made based on more than just the surface numbers. What’s the added value AOL and Google can bring to each other?
I’d have loved to have been a fly on the wall at the meetings at Google, AOL, and Microsoft over the last few months. Google, as is usually the case, must have made compelling arguments about not only immediate money and cash flow, but also what else could be brought to the table. Similarly, there must have been several meetings at AOL where the company wondered how much its loyalty was worth to Google -- or any other party. Microsoft must have been somewhat surprised at the speed and magnitude of Google’s offer. Rumors swirled that even IAC/InterActiveCorp at one point was interested in AOL, but AOL wanted a large valuation; perhaps something in the range of $20 billion?
Let’s examine, point by point, the non-cash elements of the deal as currently reported and the impact of the deal elements on both sides. Much of the deal foreshadows the future of search as envisioned by Google, or perhaps as jointly envisioned by AOL and Google:
Some discussion areas weren’t covered in detail in the media. For example, there was no mention of demographic profiling in any news coverage I’ve seen. Yet Google may see some value in replicating some MSN AdCenter features. AOL has a lot of information about its members which is already used to display better-targeted ads to those members. The same data could be leveraged for search.
There was also no mention of the Google Wallet. Wouldn’t it be cool if charges to the Google Wallet appeared on the AOL bill already being processed? Behavioral targeting within ad networks based on search behavior is also a hot topic and may have been a major point of discussion between Google, AOL, and MSN.
There was also no specific mention of pay-per-view content. AOL and its parent company, Time Warner, have some of the best archival video available. Would the Google wallet and AOL direct billing be the best way to monetize that great video content? Perhaps.
I like it when networks compete; both advertisers and marketers benefit. Of course, an overly monopolistic Google might slip up and do some evil. Let’s hope it sticks to its mission.
Want more search information? ClickZ SEM Archives contain all our search columns, organized by topic.
Learn Digital Marketing Insights From Leading Brands!
ClickZ Live Chicago (Nov 3-6) will deliver over 50 sessions across 10 individual tracks, including Data-Driven Marketing, Social, Mobile, Display, Search and Email. Check out the full agenda, or register and attend one of the best ClickZ events yet!
Kevin Lee, Didit cofounder and executive chairman, has been an acknowledged search engine marketing expert since 1995. His years of SEM expertise provide the foundation for Didit's proprietary Maestro search campaign technology. The company's unparalleled results, custom strategies, and client growth have earned it recognition not only among marketers but also as part of the 2007 Inc 500 (No. 137) as well as three-time Deloitte's Fast 500 placement. Kevin's latest book, "Search Engine Advertising" has been widely praised.
Industry leadership includes being a founding board member of SEMPO and its first elected chairman. "The Wall St. Journal," "BusinessWeek," "The New York Times," Bloomberg, CNET, "USA Today," "San Jose Mercury News," and other press quote Kevin regularly. Kevin lectures at leading industry conferences, plus New York, Columbia, Fordham, and Pace universities. Kevin earned his MBA from the Yale School of Management in 1992 and lives in Manhattan with his wife, a New York psychologist and children.
Hong Kong, October 21-22
London, November 13-14
San Francisco, November 13-14
London, November 18-19
Google My Business Listings Demystified
To help brands control how they appear online, Google has developed a new offering: Google My Business Locations. This whitepaper helps marketers understand how to use this powerful new tool.
5 Ways to Personalize Beyond the Subject Line
82 percent of shoppers say they would buy more items from a brand if the emails they sent were more personalized. This white paper offer five tactics that will personalize your email beyond the subject line and drive real business growth.