AOL-Google revenue-sharing pact includes mobile, online video services

By Steven Overly
Washington Post Staff Writer
Thursday, September 2, 2010; 10:45 PM

AOL and Google announced Thursday a five-year renewal of their revenue-sharing pact, which will now include mobile search and online video, two areas that AOL chief executive Tim Armstrong called critical to the future of his company as it tries to revamp and return to profitability.

"First and foremost in the turnaround, one of the things we've been doing is positioning the company for where the puck is going," Armstrong said. "AOL recognizes that mobile is important and is taking active steps to put the company in that direction."

Armstrong said AOL is ready "to enter a new phase starting to focus on offense," with plans to roll out new Web products this fall.

This week, AOL bought Palo Alto, Calf.-based Rally Up for an undisclosed sum. The start-up built such mobile apps as Rally Up, a private, location-based microblogger network, and FacePlant, which allows for video chat on the iPhone.

Thursday's deal with Google builds on an existing agreement in which Google powers the search functions on AOL's slew of Web properties in return for a cut of the proceeds. That relationship will now extend to AOL mobile. AOL will also distribute its video content on Google's YouTube.

"It's particularly exciting to see our relationship expand into video and mobile," Eric Schmidt, Google's chairman and chief executive, said in a news release. "These areas are now at the heart of users' online experiences and at the core of both of our businesses."

The Mountain View, Calif.-based search giant declined to comment further on the deal.

Armstrong said a confidentiality agreement precludes him from saying how much money the arrangement might bring in, but he said it naturally follows that a better customer experience will translate into more revenue.

He said the company's decision to bolster its mobile business comes as cellphones and wireless networks become powerful enough to enable people to readily consume content over the airwaves. It is also part of a larger reorganization that began in December when AOL officially split from then-parent company Time Warner.

AOL has since sold some long-held assets, such as the ICQ instant messaging program and the social networking company Bebo, while building up its content and advertising arms through acquisitions such as Patch, a network of local news Web sites. At the beginning of August, AOL reported a second-quarter loss of more than $1 billion, attributable in part to its writing down the value of certain assets.

But in an interview Wednesday, Armstrong said the company has hired hundreds of employees across all divisions, although he would not provide a specific number. It is also unclear how many of those jobs are at AOL's campus in Dulles; a spokeswoman would not break down hiring information by region.

The company has $500 million in cash in hand. Although Armstrong said he is in no rush to spend the money, it may signal future partnerships and acquisitions.

"Game plan number one is to hoard it," Armstrong said. "Game plan two is to use it in strategic areas."

© 2010 The Washington Post Company