Google Loses Verizon Mobile Search Deal to Microsoft--But How Big a Loss Is It?

Posted by: Rob Hof on January 8, 2009

Google just lost a big mobile search deal to Microsoft. On late Wednesday, Microsoft CEO Steve Ballmer said the software giant’s Live Search will be the default search service on Verizon Wireless. The deal is seen as a big blow to Google, whose substantial lead in desktop search it hopes to extend to the wireless Web.

But is it that big a loss? The answer depends on the details of how search will work on Verizon devices. But I wonder if, in the new era of fully capable mobile Web browsers that Apple’s iPhone has ushered in, such deals are less important than they used to be. According to Nielsen Mobile, of the 20% of mobile users who use search on their phones, 60% of them use Google and only 6% use Microsoft (18% use Yahoo). Since Google’s only deals are with Sprint Nextel, as well as a search bar on T-Mobile’s Google Android-based smartphone, it’s clear that most people are choosing Google regardless of what the default search option is.

Microsoft also paid dearly to get the deal—to the tune of up to $650 million in guaranteed payments to Verizon over the five-year term, or about double what Google was willing to pay, according to the Wall Street Journal. That equals or even exceeds all the ad revenue it’s expected to get, according to Bernstein Research analyst Jeffrey Lindsay. Clearly Microsoft, with its huge cash coffers, can afford to do that, but five years is a long time in this business to put off any hope of profits. Who knows what the wireless world will look like in five years?

What’s more, the deal doesn’t automatically transform Microsoft’s search advertising efforts, as the Reuters story notes:


However, the deal was not likely to change how many Verizon Wireless customers use their phones to surf the Web, CCS Insight’s Jackson said. While the details of the agreement have yet to be revealed, he said Google may have been a better choice to help Verizon offer personalized Web services, such as delivering ads that are relevant to users’ interests.

“The ultimate goal in mobility is contextual awareness and the delivery of highly personalized experiences,” Jackson said. “These are competencies Google has in spades, so it may be that Verizon’s customers ultimately end up with an inferior experience relative to what Google might enable.”


Not least, Google may actually win in another way from losing a few deals like this. Besides the economy, its key issue is contending with worries that it’s too powerful. It’s harder for regulators to make that case when it doesn’t own all the marbles. And Google saves money in the process by avoiding a deal that doesn’t produce any profits.

Don’t get me wrong—this is clearly a win for Microsoft. And Google’s mobile efforts, one of the company’s highest priorities, haven’t exactly set the world on fire yet. But it’s far from clear how much the search landscape will change as a result of this deal.

(Disclosure: I hold some Verizon Communications stock given to me by my father, who worked at GTE, the former name a precursor of the company. Verizon Wireless is a joint venture of Verizon Communications and Vodafone.)

Reader Comments

anonymous

January 8, 2009 9:17 PM

In your disclosure you state that the former name of Verizon was GTE. That is not true. Verizon was a merger of Bell Atlantic and GTE, GTE being the small of the two and as an employee of the fGTE the loser in the deal.

Craig Misak

January 9, 2009 12:41 PM

I fear that Microsoft will push its weight and make Verizon lock down it's phones to the point Google Apps won't install.... And that could cause some major backlash with Verizon Cus. I'm looking at switching carries and Verizon was looking to be the front runner. But fear all my Google apps I've grown to rely on won't work is too big of a concern to gamble with. So either Verizon is going to suffer or Microsoft because Google dominate the mobile realm and I don't see that switching too soon. And at the rate Microsoft is burning through cash to stay in the market is becoming pathetic. I personally think the contract will be broken due to the damage it's going to cause to both companies bottom line.

Brandon S

January 9, 2009 1:37 PM

Typical Microsoft, spends their money buying market share instead of making a better product.

Jandler

January 9, 2009 2:32 PM

MS pay money to have live search on phone. Google planned to pay OEM to have chrome default on pc.

I don't see any problem. If we say MS is buying market share for search, we can say that Google intent is the same with chrome, right? Or is it because it is Google, it doesn't count? hmm? What about Google deal with sprint and t-mobile?

the point is everyone make deals and allies to further their products.

m.r.

January 9, 2009 4:37 PM

easy to switch to GOOGLE. wasted money could have been spent to improve MS search. MS should have taken Yahoo and
worked on search engine. MS is becoming less relavent to more users as time goes by. not very optimistic of Win 7
as a OS platform, either. they just dont get it!

Henrik

January 9, 2009 5:08 PM

Well, if Microsoft can't win the battle for the search engines, they might as well try gain a foot hold in other market areas.

Start a membership site

peterb

January 9, 2009 5:28 PM

@Craig Misak,
Microsoft doesn't have the luxury of pushing Verizon to lock anything down until it proves itself to the carrier and its subs.

This is the first deal of its kind (strategic importance & size) for the company, so it's going to be very busy working to fulfill the requirements of this deal: the deal was not won because of the superiority of Microsoft's solution, but was bought with money (terms being ridiculously in favor of Verizon, I am sure). Oh, and it probably helped that that Verizon is not necessarily in love with Google.

The deal is still a significant opportunity for the Redmond giant. As the saying goes, it's theirs to lose. Let's check in a year from now and see how they are doing.

carson d.

January 9, 2009 7:16 PM

Microsoft's Internet Explorer has dominant marketshare and the majority of the people that use the browser default to Google and use Google Search anyway. People will simply go out of their way to use the best. Google is clearly the best and always getting better and better.

Paul

January 10, 2009 2:57 AM

Everyone buys market share. Even Google. In fact, they've been in the paid distribution game for years. You didn't just learn about Google because it's a good product, it was clever marketing through business development deals. Before Google, Yahoo was doing the same thing. Microsoft is just a bit late to the game in doing deals like this, but it's good to see they're here so there can be some good competition.

Search today (from all companies) is so basic.. and as consumers we should not be satisfied with the accuracy we get on any search provider today.

Thomas Wen Lao

January 10, 2009 8:37 AM

Interesting article but the real action on search is in China.
A nascient market that is now controlled by Baidu.
That is changing in a big way now as Google (partnered with local startup Subye.com ,MYST.OB) is making great inroads.
That is the situation to watch

John L.

January 10, 2009 1:50 PM

You wrote that Google's only deals are Nextel and Android. Google is also the default search on the iPhone -- which is the dominant mobile platform for web browsing.

GlenTerra

February 23, 2009 11:05 AM

Microsoft loses money on the deal for the next five years, and Verizon will lose customers such as myself. Google the clear winner.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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