Google's Investment in AOL, Almost a Wash

aolsad.jpg In December 2005, Google (s GOOG) bought 5 percent of AOL, a division of Time Warner (s TWX), for about $1 billion. The impetus of the deal was to keep AOL and its traffic out of the reach of Microsoft (s MSFT) and Yahoo (s YHOO). Of course, the two companies tried to spin it and gave many other reasons.

“Our investment underscores our recognition of AOL as a valuable strategic asset and our desire both to contribute to and participate in its future success,” said Eric Schmidt, CEO of Google. Well, now that AOL is being spun out of Time Warner, one would think it’s a good time for Google to participate in AOL’s future success.

AOL’s Estimated Value Based on Google’s 5% Stake
2005 $20 Billion
2008 $10 Billion
2009 $5.66 Billion

Not so much: Google sold off its stake in AOL for $283 million, including cash distributions owed, Bloomberg reports. The sale values AOL at about $5.66 billion. In comparison, back in April 2008, AOL was being valued at $10 billion. I am a little surprised by the timing of this sale, to be honest.

Google has used a lot of cash to ward off competition from Microsoft over the years. It’s not clear how much money it has made back from the $1 billion deal with AOL or from the $900 million agreement with News Corp. It sure would be nice to figure out how much money Google has earned from these agreements.

Former Google executive Tim Armstrong is currently trying to figure out a strategy for the company as he tries to control costs. Job cuts are being considered. I think the company has struggled with its advertising business (Platform A) but has been thriving with its media business. As I wrote in January 2009, “What Time Warner needs to do is combine MediaGlow, AOL Music, AOL Video, TMZ and AOL Entertainment. A smaller, more focused combined entity would play to Time Warner’s core strength: content.”