I think the reasons behind the actions of each party were economic, not the Machiavellian strategy you suppose. It is all about gross advertizing revs for Google, and Google maximizes these on owned and operated websites, a big contributor to revs and currently a small one for Microsoft. IMO, Google pulled out of a bidding war after thoroughly considering their strategy.

For Verizon, the motive was pure economics, driving a bidding war between Google and Microsoft which Microsoft needed to win more than Google IMO. Sure, Verizon is trying to recoup its big spectrum investment that Google bid up to achieve an open network. But Microsoft needed this mobile search partnership as its only other partners (LG, Samsung and HTC) are also enjoying relationships with Google, esp with Android.

For Microsoft, they are a distant third in search and unlike Google which owns and operates the majority of their search ad revs (more than 60% for O & O sites v approx 30%+ for partner network websites where they share out the revenues), Microsoft O & O website ad revenues are still small. The Verizon deal helps Microsoft gain more size. Also worth noting that partnership distribution deals for Google are a small revenue contributor and lower margin (hence not worth going to the mat for).

Seems to me that re mobile search, Google should and is now concentrating on partnerships with hardware operators for deals...eg, iPhone and Android, rather than carrier deals. Google has experience with carrier deals, esp with NTT Do Co Mo in Japan, with its high search/TAC rate.

If smartphones become a two or three horse race soon between Android, iPhone and Blackberry, and when the web experience on mobiles improves to a level closer to the PC experience (Clearwire/4G, etc), carriers like Verizon can afford to make switching the default search away from Microsoft more difficult than on a PC. But once the experience converges, carriers will be less relevant.

modelportfolio2003

Verizon is putting it's reputation on the line for its shortsightedness in offering inferior service with the Microsoft deal and dissatisfied customers will leave in droves all in a desperate fruitless attempt to squeeze out a few more bucks in the short term for Verizon. What kind of promotion is Verizon going to push on customers and potential customers now. What? "Verizon, now with Microsoft Search." Haha! You've got to be kidding me! Everybody run away from this rabid dog with fleas. The Horror! They might as well say, "Verizon, now with usless crap and junk services dissatisfaction guaranteed 100%, looking to dissatisfy our customers every minute of the day!" When customers are not satisfied, they go elsewhere to meet their needs and with this Verizon/Microsoft deal it WILL backfire bigtime! Verizon will get burned bad, real bad, the worst the company has ever seen in it's history. Customers will flock to other superior services and will give partners in the Open Handset Alliance a huge opportunity gain marketshare in the mobile space. Come to think of it, this could be the best thing ever to happen to the mobile space in it's short history, opening up the mobile space once and for all and giving the power to the customers and taking it away from the idiots in the telecommunication ivory towers. With the new administration strong support and backing of an open internet Verizon will succumb to an open internet. People and the communities they create WILL get the last say. 2 words baby: Google Android.

Good article. Bordering on little conspiracy theory-ish. None the less, I am a prof. SEM marketer and your points may have influenced Verizon but I dont see it beyond that. I think dollars and cents have more to do with it now. Budget cuts more than Google's inflating ego make a more modest provider more apealing.

I also think none of it matters. MSN could eat up all of Google's partners and it's just a drop in the bucket. They have been a step ahead for last 10 years. MSN and Verizon are gonan have to do quite a bit more to even stub Google's toe.

i think so

Definately money related, there simply is no other reason why anyone would choose Microsoft.

JoJo......right on spot, babe! Only two words: google&android

Has the author even used live search mobile. Its live search mobile thats light years ahead of google maps mobile. Can you say voice recognition??? I have used windows mobile live search and google maps side by side for over a year and at this point I always use WMLS its far better. When WMLS came out I and a few friends couldnt figure out for the life of us why MS wasnt heavily promoting this product. It took them a little bit but looks like they are now!!! Go use both products and you will see why verizon choose WMLS.

Clint,

I agree with all of your analysis. I must say I haven’t recently used Live Search Mobile but what I can tell you is Google has a far greater advertising network and therefore is able to monetize this search relationship to a far greater extent than Microsoft. This is obvious to everyone.

So the three reasons Microsoft won are as follows:

1) Microsoft is a better product.

a. If this was true why is the media wondering why Google didn’t win?
b. Also if this is true then Verizon is taking a financial loss to provide a superior service? Doesn’t compute to me.

2) Microsoft is paying more to Verizon – at a loss.

a. This is very possible and would explain why this is a smart financial decision for Verizon and for Microsoft an investment in gaining future search momentum.

3) Verizon is scared of Google and/or paying them back

a. This one just makes the most sense to me
In the end it could be a combination of all of the above but what I can tell you is competition in search is good. And Google needs a strong competitor to slow down what many are concerned is a growing monopoly.

The fact that Microsoft is the champion of the anti—monopoly thinkers is an irony I never saw coming.

All interesting theories, but I'm afraid this one simply came down to Microsoft offering more $. That is what all these distribution deals come down to: what search provider is willing to pay out the most in guaranteed revenues. For the providers, it then becomes a risk vs. reward proposition driven by how badly they need the inventory and whether they believe they can make more ad $$ from the deal than they shelled out in guarantees.

The Journal reported that MS will be shelling out $500mm in guaranteed revenues over 5 years and that this is more than double what Goog was willing to pay. Bear in mind that MS pays that amount whether or not they make that much in ad revenues and I would say it's probably a huge stretch that they will. So clearly, Goog is negotiating from the position of power here and didn't feel they needed the deal bad enough to risk losing $$ on it.

I would expect to see MS winning more and more of these deals as they will be willing to pay out huge guarantees in an effort to win share. Google, on the other hand, learned its lesson on the Myspace deal, where they agreed to $800m in guarantees and didn't come close to recouping that in ad revenues. I would imagine they have learned that their brand is strong enough that most people will bypass any default (Dell toolbar, Verizon default mobile search, etc)and go straight to Google.com, regardless of who the default provider is.

Here are the HARD FACTS.

Source: BusinessWeek

According to Nielsen Mobile, only 20% of mobile subscribers use search on their phones. Of those, 60% use Google, 18% use Yahoo and only 6% use Microsoft. Hof deduces that since Google's only exclusive deals are with Sprint Nextel and the Android-based T-Mobile G1 phone, "it's clear that most people are choosing Google regardless of what the default search option is."

Why are people using Google anyway regardless of the default as these stats show. I'll tell you why because Microsoft search is HORRIBLE HORRIBLE HORRIBLE as is my personal experience as well as the millions of people who have flocked to Google awayfrom Microsoft as the stats show here. And the monthly and annual stats of Nielsen, Comscore, HitWise mirror this trend. Microsoft search is like a really bad over extended April Fool's joke. Even though Microsoft tries to bribe users to use it's search they continue to bleed marketshare.

@jojo, YES. Google Android.

Here is the rest of the article. http://www.businessweek.com/the_thread/techbeat/archives/2009/01/google_loses_ve.html?chan=technology_technology+index+page_top+stories

Android IS the future!

are you serious??

microsoft is *paying* verizon, dell, and sun to work with live search.. do you really think it's anything more than that?

Summary: Long time verizon customer gives up in frustration migrates to AT&T. Due to lack of good phone options and lack of good customer support.
Google fan isn't impressed by Chrome.

The market place is more complicated than your article reveals...

I've been a verizon customer for more than 10 years. The family was all on verizon. My wife had both a standard cell phone and motorola Q for her data connection. She is a heavy business user. She used two phones one for data and a razor becaus of the small size and long battery life for voice. Recently she tried to find a new data phone& voice phone all in one.
1. For data and email, She'd been using the motorola Q for about two years... and prior to that she was an original fan of the black berry, so the latest black berry appealed. She tried the latest BB (i.e. BB's answer to Iphone), but the interface and setup was hours long with verizon, and just didn't satisfy with ease of use... the black berry got shipped back.
2. Simultaneuosly, Verizon had a billing problem with our account over the past few months, so they were sending messages to thier version of an email account, instead of simply text messaging the primary account holders phone with a message, they were posting messages to some default verizon email account, which we didn't even know existed. The subsequent hours of phone discussions where verizon customer support didn't refund the resulting charges, because of a billing snafu, and the lack of a good phone alternative, caused my dearest to give up in frustration.
3. AT&T now has a new Iphone customer, and the interface was minutes to setup. Hence, verizon lost two accounts, both her cell phone, and data phone accounts are gone.
4. The plan is for the rest of the family, an additional 3 phones, to migrate to AT&T as our individual phone contracts expire over the next 7, 18 and 21 months, perhaps sooner depending on who's phone get's lost first ;).

The take home message is that the whole service experience and minimizing frustration is what counts. Verizon coverage is still great but their phone offerings (not coming to an agreement with Apple for the IPhone was a mistake) and how they treat their long term customers is key. Also, I am not an apple fan, as I think the OSX, and safari are a challenge to use (even the simple act of resizing a window, can only be acheived from the bottom right hand corner... where in windows you can resize from any portion of theh window....) Apple's OSX10 is not comfortable... Sure the graphics are eye candy, but beyond that... I don't see the appeal. Sorry for digressing...

Also, Google's chrome is not a fast browser. My experience on an older laptop is that it's buggy and awkward and frankly it's ugly. And I am a google fan. So I'm not impressed as of two months ago, and that was after most of the initial bugs were worked out. So I don't think that googles chrome is scaring anyone.

People are going to follow a path of least frustration and that ties into economics and everything else.
Verizon doesn't have all the answers, and neither does google.