Sept. 15 (Bloomberg) -- America Online, the world's biggest Internet access provider, may replace Google Inc.'s search engine with a rival product from Microsoft Corp., said a person familiar with the matter.

Microsoft also is considering taking a stake in America Online, a unit of Time Warner Inc., as part of a broader agreement the two companies are discussing, the person said. The person declined to say how large the potential investment might be.

A deal would allow Microsoft, the world's biggest software company, to shore up its position in the search market and revive its MSN Internet business. Google controlled 56 percent of global search queries in June, Yahoo! Inc. had 22 percent and Microsoft had 11 percent.

``Microsoft's problem is that despite having all this stuff, they haven't really budged their share of search,'' said Danny Sullivan, editor of London-based SearchEngineWatch.com, which tracks the search industry.

Time Warner Chief Executive Richard Parsons said this week he is considering options including a proposal from investor Carl Icahn that the company spin off its cable unit and buy back more stock. The shares have fallen 61 percent since AOL acquired Time Warner in January 2001. The company lost more than $100 billion in 2002 after the Internet bubble burst.

Lou Gellos, a Microsoft spokesman in Redmond, Washington, declined to comment, as did Time Warner's Ed Adler in New York.

``Google and AOL have a healthy global partnership and AOL remains a valued partner,'' Google spokesman Michael Mayzel said. He said he was unable to comment further.

Time Warner shares rose 58 cents to $18.50 at 4 p.m. in New York Stock Exchange composite trading. Microsoft fell 4 cents to $26.27 on the Nasdaq Stock Market. Google rose 53 cents to $302.62.

Instant Message

AOL and Microsoft also talked about making their instant messaging services compatible and jointly selling online advertising, the person said. The talks were reported earlier today in the Wall Street Journal. The New York Post earlier today reported that Microsoft may take a stake in Time Warner.

AOL, which has lost 6 million dial-up subscribers since 2002, this year added a free Web site with videos, news and a search engine powered by Google. The free service marked a key part in a plan by Parsons and AOL Chief Executive Jonathan Miller to bolster sales as subscription fees fall.

``Time Warner's not a technology company,'' said Richard Steinberg, president of Boca Raton, Florida-based Steinberg Global Asset Management, which owned 38,000 Time Warner shares as of June. ``It's a content company.''

Google provides Web search technology for AOL and sells the text-ads that appear alongside AOL's search results. The companies signed the agreement in May 2002.

Online advertising and other fees generated by America Online accounted for about 11 percent of Google's revenue in the six months ended June 30, Google said in a Sept. 8 regulatory filing.

Parsons's Efforts

Parsons, 57, said Time Warner is considering Icahn's proposals to buy back $20 billion of stock and spin off the company's cable systems unit. Icahn, who has led investors in purchasing 2.6 percent of the company, on Sept. 12 said he plans to propose nominations to Time Warner's board.

``We have in place a process through which we are carefully reviewing a range of options to increase the value of our company,'' Parsons wrote in an e-mail to employees Sept. 13.

In his three years leading Time Warner, Parsons has cut net debt to $13 billion, sold a music unit, returned AOL to profit and settled a Securities and Exchange Commission probe.

He is now planning a $5 billion share buyback over two years and intends to sell 16 percent of his cable unit in an initial public offering next year, when the company closes its purchase of Adelphia Communications Corp. assets.

The Internet unit accounted for 21 percent of Time Warner's 2004 sales and 18 percent of its operating profit. AOL's ad sales gained 45 percent in the second quarter, not enough to offset a 9 percent decline in revenue from subscription.

In the quarter, AOL's sales fell 4 percent to $2.1 billion and the unit ended the period with 20.8 million customers. Time Warner had a total net loss of $321 million, or 7 cents a share, in the quarter after setting aside $3 billion to pay for AOL-related claims. Sales fell 1.1 percent to $10.7 billion.

To contact the reporter on this story: Cecile Daurat in New York at cdaurat@bloomberg.net; Rebecca Barr in New York at rbarr1@bloomberg.net.

Last Updated: September 15, 2005 16:42 EDT