Google confirms it is to take 5% stake in AOL in $1bn deal

Time Warner had been in talks with other internet companies including Microsoft's MSN and Yahoo! before reaching the agreement with Google.

The deal will see AOL and Google collaborate on an online video offering, and make the Google Talk instant messaging software compatible with AOL's instant messaging AIM service.

With an eye on attracting even more advertising dollars, an AOL Marketplace is to be created, so that AOL can sell search advertising directly to advertisers on AOL-owned properties, using a white-label version of Google's ad technology.

There are also plans to expand display advertising throughout the Google network and to showcase AOL's premium video service within Google Video.

The deal could be expanded over time to include other Time Warner properties.

Eric Schmidt, chief executive of Google, said: "Today's agreement leverages technologies from both companies to connect Google users worldwide to a wealth of new content.

"We've also created a simple way for AOL Marketplace advertisers to buy and place search-related advertising across the AOL network. This partnership is an important next step for our companies."

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