Google to thwart Microsoft with AOL bid?

Google could try to bid for AOL to pre-empt a Microsoft takeover and protect the $380m in revenue Google gets from its biggest partner, according to an analyst.

Lauren Rich Fine, an analyst at Merrill Lynch, wrote in a Friday report on the implications of an AOL-Microsoft Network deal: "We believe it is entirely possible that Google could consider making a bid for AOL as well. This would certainly protect Google's revenues from AOL as well as enable Google to keep 100 per cent of the search advertising revenues as well as gain a significant amount of content."

The New York Times reported on Thursday that Microsoft was in talks with AOL's parent Time Warner on merging AOL with MSN and other options as a way to counter the serious competitive threat Google poses in the portal and search market.

The Wall Street Journal has reported that AOL may be considering switching its search engine from Google to MSN, which could cut Google's earnings per share by between five and 10 per cent, the report said. AOL generated about 12 per cent of Google's revenues in 2004, or $382m.

Google began providing search services for AOL in 2002, replacing Overture, which was acquired by Yahoo!. In 2003, AOL and Google broadened their agreement. Google pays AOL every time someone clicks on one of its sponsored links and lets advertisers bid for the AOL search result placements for specific keywords users enter.

The Merrill Lynch note came within days after Google raised $4.1bn in a secondary stock offering.

A Time Warner representative declined to comment, and an AOL representative did not immediately return a call seeking comment for this story.

Google also declined to comment.

Elinor Mills writes for CNET News.com