Time Warner's AOL May Dump Google Search Engine, Use Microsoft

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Time Warner's AOL May Dump Google Search Engine, Use Microsoft

      Sept. 15 (Bloomberg) -- America Online, the world's biggest Internet
access provider, may replace Google Inc.'s search engine with a rival
product from Microsoft Corp., said a person familiar with the matter.

      Microsoft also is considering taking a stake in America Online, a unit
of Time Warner Inc., as part of a broader agreement the two companies are
discussing, the person said. The person declined to say how large the
potential investment might be.

      A deal would allow Microsoft, the world's biggest software company, to
shore up its position in the search market and revive its MSN Internet
business. Google controlled 56 percent of global search queries in June,
Yahoo! Inc. had 22 percent and Microsoft had 11 percent.

      ``Microsoft's problem is that despite having all this stuff, they
haven't really budged their share of search,'' said Danny Sullivan, editor
of London-based SearchEngineWatch.com, which tracks the search industry.

      Time Warner Chief Executive Richard Parsons said this week he is
considering options including a proposal from investor Carl Icahn that the
company spin off its cable unit and buy back more stock. The shares have
fallen 61 percent since AOL acquired Time Warner in January 2001. The
company lost more than $100 billion in 2002 after the Internet bubble burst.

      Lou Gellos, a Microsoft spokesman in Redmond, Washington, declined to
comment, as did Time Warner's Ed Adler in New York.

      ``Google and AOL have a healthy global partnership and AOL remains a
valued partner,'' Google spokesman Michael Mayzel said. He said he was
unable to comment further.

      Time Warner shares rose 58 cents to $18.50 at 4 p.m. in New York Stock
Exchange composite trading. Microsoft fell 4 cents to $26.27 on the Nasdaq
Stock Market. Google rose 53 cents to $302.62.

      Instant Message

      AOL and Microsoft also talked about making their instant messaging
services compatible and jointly selling online advertising, the person said.
The talks were reported earlier today in the Wall Street Journal. The New
York Post earlier today reported that Microsoft may take a stake in Time

      AOL, which has lost 6 million dial-up subscribers since 2002, this
year added a free Web site with videos, news and a search engine powered by
Google. The free service marked a key part in a plan by Parsons and AOL
Chief Executive Jonathan Miller to bolster sales as subscription fees fall.

      ``Time Warner's not a technology company,'' said Richard Steinberg,
president of Boca Raton, Florida-based Steinberg Global Asset Management,
which owned 38,000 Time Warner shares as of June. ``It's a content

      Google provides Web search technology for AOL and sells the text-ads
that appear alongside AOL's search results. The companies signed the
agreement in May 2002.

      Online advertising and other fees generated by America Online
accounted for about 11 percent of Google's revenue in the six months ended
June 30, Google said in a Sept. 8 regulatory filing.

      Parsons's Efforts

      Parsons, 57, said Time Warner is considering Icahn's proposals to buy
back $20 billion of stock and spin off the company's cable systems unit.
Icahn, who has led investors in purchasing 2.6 percent of the company, on
Sept. 12 said he plans to propose nominations to Time Warner's board.

      ``We have in place a process through which we are carefully reviewing
a range of options to increase the value of our company,'' Parsons wrote in
an e-mail to employees Sept. 13.

      In his three years leading Time Warner, Parsons has cut net debt to
$13 billion, sold a music unit, returned AOL to profit and settled a
Securities and Exchange Commission probe.

      He is now planning a $5 billion share buyback over two years and
intends to sell 16 percent of his cable unit in an initial public offering
next year, when the company closes its purchase of Adelphia Communications
Corp. assets.

      The Internet unit accounted for 21 percent of Time Warner's 2004 sales
and 18 percent of its operating profit. AOL's ad sales gained 45 percent in
the second quarter, not enough to offset a 9 percent decline in revenue from

      In the quarter, AOL's sales fell 4 percent to $2.1 billion and the
unit ended the period with 20.8 million customers. Time Warner had a total
net loss of $321 million, or 7 cents a share, in the quarter after setting
aside $3 billion to pay for AOL-related claims. Sales fell 1.1 percent to
$10.7 billion.

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