On December 22, Time Warner agreed to sell 5% stake in its internet division AOL to Google for $ 1 billion.

This story dates back to around 6 months ago (around June, 2005). The market was then rife with rumors that Microsoft was negotiating with Time Warner to acquire a  significant stake in AOL.

AOL's success story based on subscription model was stagnating in the face of stiff competition from Microsoft, Yahoo! and other portals. With subscriber attrition rate on the rise, some Time Warner executives proposed that its major stake in AOL be divested.

Meanwhile, it dawned on other executives (at Time Warner) that the U.S. broadband penetration had  achieved critical mass for implementing video downloads & video streaming.

Given the huge content library of its parent co. Time Warner, the next step for AOL was almost obvious: to transform itself into a video-centric site.

AOL revised its revenue model, permitted non-subscribers to surf its site. And made video one of the main offerings, both to existing subscribers as well as to others. And soon, the results were visible - subscriber attrition was arrested; in fact, site popularity started showing a positive turn. (Nielsen/Net Ratings have declared AOL as the 5th most popular web-site in the world with nearly 75 million visitor in November '05.)

As expected, the plans of "selling" AOL were deferred. In fact, as it turned out, the plans were scrapped totally.

And after many months of speculation, December 2005 saw Time Warner agreeing to sell 5% of its stake in AOL to Google.

Mutual Benefits
While Microsoft was bidding for acquisition of stake, Google offered to come in as strategic partner for advertising. In a booming internet advertising market, it is hardly surprising that AOL (recently re-launched successfully as a video site) preferred to tie up with Google.

The benefits are instant & mutual.

AOL can attract more visitors with a little help from Google's Search engine.

Google can make its new instant messaging system GoogleTalk more popular with cross communication between users of market-leader AOL's instant messaging service.

Meanwhile, AOL's ad revenues can be expected to grow with a little help from Google's successful text-based ad network.

And finally, Google can expand its text-based advertising to include graphical & video banners served by AOL.

Video-over-the-Internet
In all this business one point is crystal clear: the age of video-over-the-Internet is here. The year 2006 should be the year of IPTV & video-on-demand.