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Updated Saturday, September 4, 2010 11:04 pm TWN, By Andrew Vanacore NEW YORK, AP

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AOL signs 5-year search agreement with Google

Armstrong has remained upbeat, attributing the declines to a necessary paring of assets that are contributing revenue but not enough profit. The latest example was Bebo, a social networking site AOL bought for US$850 million in 2008 but failed to build into a successful competitor to Facebook.

Although AOL declined to give specific financial details, Armstrong called the Google deal a “home run” and framed it as an important step in the turnaround effort.

“We have a very methodical play book for turning AOL around,” Armstrong said in an interview. “And today represented another big step.”

Armstrong said that before deciding to stick with Google, AOL talked with five or six other search providers he wouldn't name. The deal was done well ahead of the December expiration of their previous agreement.

Still, given Google's dominant position in the search business and the extra capabilities it has in mobile and online video, the deal was not a surprise.

“While Microsoft's Bing was probably in the mix, Microsoft is not as ubiquitous as Google is,” said David Joyce, an analyst who follows AOL for Miller Tabak & Co. “One big thing Google has that Microsoft doesn't is YouTube.”

Joyce said YouTube could be an opportunity for AOL to drive more people to its video content, which would help boost advertising revenue.

Earlier this week, MySpace, which is owned by News Corp., extended its search ad partnership with Google by a month while talks continue. The deal had been set to expire at the end of August.

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