Redmond (WA) - This week, Microsoft added two new mid- and long-term distribution deals that will see its Live Search and Windows Live Toolbar preinstalled on consumer and small-business computers from Dell, as well as mobile phones and smartphones from Verizon. The five-year deal with nation's second-largest carrier, and the three-year deal with Dell, come hand in hand and just in time to stop further erosion of Microsoft's four year old search engine which has been diminishing in both market share figures and dominance.
The newly signed agreement with Dell will surely help stop the decline given sheer number of computers that Dell ships into the market. According to the terms of agreement, the computer vendor will preinstall Live Search and a Windows Live toolbar on consumer and small-business PCs over next three years, starting next month. The Dell deal comes in addition to similar agreements Microsoft previously struck with Lenovo and HP. Microsoft bets that preloading Live Search on HP, Lenovo and now Dell computers will boost the ailing search engine.
But although Live Search gained some momentum since it was unveiled four years ago - thanks to clever marketing like cash-back promotions that gave consumers financial incentive if they use Live Search, the search engine has been surrendering market share lately and currently stands in single-digits. According to the latest Nielsen Online data, Live Search was responsible for 9.1% desktop searches in the U.S. in November, down 16.7% from the same period a year ago. Google leads the pack with 64.1% of all desktop searches, up 21.7% annually, followed by Yahoo which amounts to 16.1% of searches, down 1.4% annually.
When it comes to the mobile space, Microsoft outbid Google for the five-year mobile search and advertising deal with Verizon. The terms of the deal, allegedly worth at least $650 million paid on a per handset basis, will have the carrier preload Live Search engine as the default choice on all new phones and smartphones, both for voice search and classical typed queries. Microsoft's search engine will tailor mobile searches to a geographical information, enabling Verizon users to search for nearby content. In addition, the software maker will also provide search services for Verizon VCast content to includes ringtones, songs, videos, news, etc. In return, Microsoft gets rights to handle search and display advertising for Verizon's mobile web service. The deal is scheduled to kick in sometimes in the first half of the year.
Microsoft's deal with Verizon tops the $400 million that Yahoo paid to AT&T, #1 carrier in the U.S., to become the default search engine on its handsets. Google allegedly paid around $300 million in a similar deal with the distant third carrier Sprint.
Unlike the desktop market where Microsoft's Windows operating system dominates - providing the software maker with an important basis for Live Search distribution deals with OEMs, its Windows Mobile operating system presence for cellphones is much smaller. While the software maker tries to compliment Windows Mobile presence with additional mobile advertising and search deals with carriers like Verizon, Google is not inclined to spend crazy sums just to get its search engine pre-installed on every handset.
Instead, the search giant made Android and its own operating system for mobile phones, which it’s giving for free to carriers and device vendors interested in building Android-powered smartphones. Of course, Google services and search engine also come as part of Android, so it is through its own operating system that Google aims to extend its search and advertising dominance from desktop to mobile screens - especially in 2009 when LG, Samsung, Sony Ericsson, HTC and several other smartphone and device makers introduce new Android products.
According to ComScore mobile data, just 9% of mobile phone subscribers search the web using their handsets. However, mobile search usage is exponentially growing - especially since Apple's iPhone was released. If we take a closer look at this 9% who do mobile searches, Google dominates with 60% share, followed by Yahoo (36%) and Live Search (10%). Total market for mobile phones is estimated to a whopping 3 billion subscribers worldwide, so it shouldn't come as a surprise that most analysts see mobile advertising overtake desktop in five years.