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

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, a precursor of the company. Verizon Wireless is a joint venture of Verizon Communications and Vodafone.)

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