AOL, and Other Online Keys

Microsoft dominates the computer world with its operating system and Office software. Google is known as the search king but is pushing into areas such as wireless communication, satellite mapping and the computer indexing of printed works. Yahoo remains the top Internet gateway, has close relationships with Hollywood and is testing the waters of originally produced news.

AOL is prized in part for its Instant Messenger tool, which remains dominant despite competition from Yahoo and Microsoft and brings with it a highly prized demographic of young users. Marrying it with service of one of its competitors would create a category-killer.

Search

There are two things computer users spend most of their time doing online: One is communicating via e-mail and instant messaging, and the other is search.

Search enables computer users to find whatever information they are looking for rapidly on the Internet. Google is the undisputed global leader in search, Yahoo is second and Microsoft is a distant third. Google and Yahoo give away search on their own Web sites and on thousands of affiliated Web sites and then profit when computer users click on text-based ads.

Through search, Google and Yahoo have found the magic formula that people have been wondering about for years: how to make online advertising work. The resulting transformation has led advertisers large and small to shift billions of dollars in ad spending to the Internet from television, newspapers and magazines.

Hollywood

The Internet used to be a vehicle for transmitting Hollywood-style entertainment that was produced elsewhere -- using online software such as Napster and Kazaa to trade music files, for instance. But companies such as Yahoo and AOL now see themselves as producers of made-for-Internet content, which makes money either through advertising or pay-per-download services.

AOL is building its own recording studio in New York -- part of the company's effort to make its affiliated Web sites, AOL.com and AIM.com, hubs for news and entertainment. AOL also has access to the vast media holdings of parent company Time Warner, which owns HBO, Warner Bros. Entertainment and Turner Broadcasting System.

Yahoo's chairman and chief executive, Terry S. Semel, is a former co-head of Warner Bros. who brings an entertainment focus to the whole company. Yahoo's site includes the Yahoo Music online store, as well as videos that Semel hopes will help build Yahoo into a made-for-Internet entertainment channel like MTV was for cable television.

Microsoft has long been involved with studios to develop Internet-television technology, and Google and Microsoft both are trying to develop underlying technologies that help entertainment companies manage their digital rights, said Allen Weiner, an analyst with Gartner Inc. Google also recently launched Google Video, a pilot project that kicked off by allowing viewing of UPN's premiere of "Everybody Hates Chris."

Getting Hollywood's biggest studios to relinquish their valuable content to the online companies is going to be a huge challenge because studios don't want to give up control, said Weiner. "Major entertainment companies are very, very reluctant to move into this in a big way."

Access

There are still only two major pipelines that bring the Internet's splendors to most American homes: telephone wires and cable TV lines. For an Internet company such as AOL or Google, having a direct relationship with a cable or phone company can help steer traffic to its Web sites and drive up ad revenue.

The regional phone giants -- Verizon Communications Inc., SBC Communications Inc. and BellSouth Corp. -- all have deals with Yahoo to jointly offer high-speed Internet access over a digital subscriber line, or DSL, connection.

Comcast could benefit from a similar relationship in which AOL would provide a world-class portal that pulls in more broadband customers. The two might share revenue from AOL dial-up customers who switch to Comcast broadband, benefiting both.

"In some ways, a relationship with AOL is more valuable because it not only provides a portal and the marketing that goes with that, but it also comes with the largest dial-up subscriber base," said Craig E. Moffett, an analyst with the Sanford C. Bernstein & Co. research firm. "Over time, most, if not all, of those subscribers will [move to] broadband."

Eyeballs

Winning on the Internet these days is all about attracting the largest and most engaged audience of computer users and converting those eyeballs into profit through advertising. The increasing amount of time people spend online has led to an enormous jump in spending, by companies large and small, on Internet advertising and commerce.

The Internet appears to be in its earliest stages of financial growth, offering the opportunity for numerous companies to prosper. While Yahoo and the America Online network of Web properties attract the largest audiences -- with each reporting more than 100 million unique visitors per month -- Google, on its own Web site and thousands of affiliated sites that utilize the search engine, puts search-related advertising in front of more eyeballs than any other player.

Yahoo's eyeball strategy involves deepening its relationship with users so they will spend more time on its Web sites. In contrast, Google seeks to move computer users on and off of its search site as rapidly as possible, by taking them to the place that has the information or products they are seeking and then profiting by showing them ads related to their search.

Staff writers Jonathan Krim, Yuki Noguchi and Arshad Mohammed contributed to this report.