Payoffs, Tradeoffs In Verizon, Microsoft Search Deal

Verizon Wireless has selected Microsoft as its official mobile search engine, but the burning question is which company is the winner and which is the loser?

Announced by Microsoft CEO Steve Ballmer during his keynote Wednesday at CES, Verizon is going to get a rumored $500 million from Microsoft for the five-year deal. However, the wireless carrier is also getting a search engine that has been steadily dropping in consumer usage -- about 9% versus Google's 63%. Google and Microsoft had been in intensive negotiations with Verizon for months over the wireless search engine deal.

"Both side need something," said search engine expert Stephen Arnold Thursday in an interview. "My hunch is that Microsoft paid Verizon and negotiated a sliding payback deal that's primarily ad-related. They'll never tell us. It's a very high stakes bet (for both companies.)" The companies have declined to provide financial terms of the agreement.

Arnold said the Achilles heel of the deal could be Microsoft's mapping technologies, which he regards as inferior to Google's. "Microsoft doesn't have the same advanced mapping services as Google," said Arnold, who has written several books and reports on online search technologies.

Microsoft has been improving its Live Search capabilities Ballmer said during the Verizon announcement. Verizon Wireless customers will be able to use voice commands and typed queries to get relevant search results including maps, traffic information, directions, and information on local businesses and movie theaters.

"Microsoft will manage search and display advertising on Verizon Wireless' Mobile Web service, creating a one-stop integrated way for advertisers and ad agencies to reach mobile consumers," Verizon said in a release.

Verizon, which is owned jointly by Verizon Communications and Vodafone Group, had been in intense negotiations with Google for months and much of their discussions centered on future -- often very distant future -- considerations. A key issue was how to split revenues from searches conducted by consumers, who, although they don't use their mobile phone search functions much today, are expected to do so in rapidly growing numbers in the future. Market research firm Marketer has predicted that mobile search ads will account for $1.5 billion by 2012, for instance.

Verizon said its subscribers will be able to access Microsoft Live Search via a device's home screen. The service on new Verizon phones is scheduled to get underway during the first half of this year. Verizon already features Microsoft Windows Mobile Operating System software on some of its phones.

As for Google, Verizon has butted heads with the search engine colossus recently. Verizon never joined Google's Open Handset Alliance, which is producing Android handsets that compete with Verizon mobile phones. Verizon has thrown in its lot with the competing Linux Mobile (LIMO) Foundation. Verizon and Google also squabbled over last year's 700 MHz auction after Google bid up spectrum prices that Verizon had to pay for.

Microsoft and Verizon are proclaiming their new deal as a win-win situation, but their competitors think it could turn out to be a lose-lose situation.