Google Inc. and America Online Inc. on December 20 expanded their Web search and advertising alliance to offer the sharing of video and instant messaging, shutting out Microsoft Corp., which had fought hard for a deal with Time Warner Inc.'s AOL Internet unit.

America Online confirmed that Google had agreed to invest $1 billion to take a 5 percent stake in AOL, as part of a pact where Google will move beyond text-based advertising to allow AOL to sell graphical ads to Google's fast-growing ad network.

The stake effectively values AOL at $20 billion, a key benchmark should Time Warner elect to spinoff or sell a part of its Internet unit in response to dissident shareholder Carl Icahn's proxy campaign to break up the company.

Terms of the deal call for AOL's Advertising.com unit to sell display and banner advertising via Google's network of partner sites. Roughly half of Google's advertising revenue comes from text ads on its own site, while the other half comes from ads sold through partners such as AOL.

Google has previously only experimented with offering logo or brand advertising on top of the text-based, keyword search advertising which it specializes in selling.

In addition, AOL agreed to make more of its content-rich Web pages searchable via Google search, including plans to feature AOL's premium video services within Google Video, a way for users to find and view video programs over the Internet.

They also said they had agreed, under unspecified conditions, to allow users of Google's recently introduced instant messaging system Google Talk to communicate with users of AOL's market-leading AIM instant messaging service.

( www.financialexpress.com)