Microsoft Corp. and Google Inc. are in a “two-horse” race to strike an Internet advertising partnership with Time Warner Inc.’s AOL online unit, sources familiar with the talks said.
Industry experts say AOL is a critical swing factor on search technology traffic among the three big Internet media companies — Google, Microsoft and Yahoo Inc. — as it once was on online advertising, a category it practically invented in the early 1990s.
Microsoft and Google each have submitted proposals to AOL over the past few weeks.
Google is still very much in the running, the sources said, contradicting a report in The Wall Street Journal that said signs pointed to a deal with Microsoft.
At least one more round of discussions is planned with each of the two parties, one source familiar with the plans said.
An agreement, which now appears unlikely to include selling an equity stake in AOL, is likely to materialize in coming weeks, probably before Christmas, the source said.
The discussions are occurring amid public threats by billionaire investor Carl Icahn, who said last week he would hold Time Warner board members “personally responsible” if they strike a deal that undervalues AOL.
Icahn and a consortium of investment firms have accumulated nearly 3 percent of Time Warner’s outstanding shares and have initiated a proxy battle to replace a majority of the Time Warner board.
Comcast Corp., which sources said was considering a joint deal with Google, is now also seeking a separate arrangement with AOL, regardless of the outcome. The top U.S. cable operator is discussing how it can market its high-speed Internet service to AOL’s dwindling but still large dialup customer base, among other topics.
“We’re talking to different people about different things,” Richard Parsons, chief executive of Time Warner told business leaders at Town Hall Los Angeles on Tuesday. “Everyone brings something different to the party.”
AOL made surfing the Internet and chatting online a household phenomenon. But it has been a drag on Time Warner’s stock as it has lost millions of dialup Internet subscribers since the merger of America Online and Time Warner in 2001.
Since then, the Dulles, Va.-based unit has focused on providing free programming and services to boost online advertising revenue.
Microsoft is testing a syndicated search system that competes with Google in France and Singapore and plans a worldwide launch next year.
The software giant’s current proposals with AOL involve a simpler deal that would marshal the advertising forces of both companies in a joint venture, one source said.
Time Warner, Microsoft, Comcast and Google declined to comment.