Internet

Return to Article

Microsoft Ends Google's Winning Streak

Scott Moritz

In a surprising setback, Google (GOOG Quote) has lost its first major battle in wireless.

A more determined Microsoft (MSFT Quote) has outbid Google for prime turf with telco giant Verizon Wireless, co-owned by Verizon (VZ Quote) and Vodafone (VOD Quote). Windows Live, not Google, will be the default search provider on Verizon phones for the next five years, Microsoft chief Steve Ballmer announced during a speech at the CES show in Las Vegas late Wednesday.

Google, which already has search deals with Sprint and T-Mobile, had been seen as the favorite in negotiations with Verizon.

"This has the potential of being a turning point for Microsoft," says Nielson analyst Roger Entner, who calls the deal "a significant strategic win for Microsoft."

Mobile is very much the future of search and more specifically, a huge market for advertising as heavy Internet use moves beyond the desktop. Google has understood the importance and has amassed a strong winning streak by extending its dominant Web search service to wireless users. Nearly two-thirds of mobile searches are done on Google. Up until now, anyway.

Microsoft didn't reveal any terms of the deal, but it was clear to industry observers that it was a must-win if Microsoft wanted to be a leader in the search business.

"If Google won, everyone else would have had to pack up their bags and go home," says Entner.

The move underscores Microsoft's somewhat fitful attempts to devise an Internet strategy. The Redmond, Wash., software giant spent the better part of last year moving toward and later walking away from a takeover of Yahoo! (YHOO Quote).

As TheStreet.com's Mike Goodman points out, Microsoft, like shortfall-plagued Intel (INTC Quote), supplies a progressively weakening PC industry.

Microsoft has long struggled in its attempts to move beyond its PC Windows success and on to mobile devices. While it has placed its mobile operating system on some 30 phones, few have come close to the success of smartphone leaders like Research In Motion (RIMM Quote), Nokia (NOK Quote) and Apple (AAPL Quote). And while huge, there's no guarantee of success for Microsoft in simply winning the default search position on Verizon phones. Many users will no doubt detour around Windows Live and run their searches on Google anyway.

Motivated buyer

"It's pretty simple," says Forrester analyst Charles Golvin. "Microsoft was willing to pay whatever it took to win this deal, and Google wasn't.

But if nothing else, the move, which reportedly cost Microsoft hundreds of millions to secure, keeps its name in front of consumers and delays a possible trip toward oblivion.

For its part, the defeat ends Google's string of victories in wireless.

Last year, Google antied up $4.6 billion a bid on federal telco airwaves. Under conditions agreed to by the Federal Communications Commission, regulators would enforce a rule of open standards on whichever outfits eventually won the radio waves. In the end, the top telcos Verizon and AT&T won the most licenses. And Google, while outbid, nonetheless won its open-standard condition. The networks built for these airwaves by Verizon and AT&T (T Quote) must accommodate open-standard wireless devices.

The second major push in Google's wireless strategy was Android, a wireless operating system that phone makers can install on selected devices.

Android is Google's direct attack on Microsoft's mobile Windows effort and an answer to Apple's private-garden approach to iPhone applications. T-Mobile, the U.S. wireless arm of Deutsche Telekom (DT Quote), introduced the first Android phone -- the HTC G1 -- in September. Other phone shops including Motorola (MOT Quote) are planning their own Android products.

Google, shares of which closed Thursday's trading session up about 1% to $325.19 -- well below their Nov. 7, 2007 high of $747.24 -- could have used a big wireless deal right about now. The recession has put the brakes on advertising sales. Analysts suspect Google's revenue growth rate slowed down in the December quarter, a first for the tech giant.