Microsoft Strikes Web-Search Deal With H-PMicrosoft Corp., hoping to gain ground on rivals Google Inc. and Yahoo Inc., announced a deal with Hewlett-Packard Co. to add built-in links to its Internet search service on H-P consumer computers sold in the U.S. and Canada.
Microsoft said it will design a custom toolbar for its Live Search service that will sit atop Web browser windows on new H-P machines. Yahoo, second to Google in the Web search market, has had the default position on H-P personal computers since 2006, a spot it will retain until Microsoft replaces it in January.
"This deal comes at Yahoo's expense," said Sandeep Aggarwal, an Internet analyst at Collins Stewart.
A Yahoo spokeswoman said the company will continue to have a business relationship with H-P, but didn't comment on why Yahoo gave up the search deal or on its relationship with Microsoft.
Google currently accounts for 62% of all searches in the U.S., while Yahoo has 20% and Microsoft 9%, Mr. Aggarwal estimates. That makes it important for Microsoft -- which recently mounted and then withdrew a buyout bid for Yahoo -- to increase its exposure with PC users. Typically, such deals involve search- engine makers paying fees to PC makers for each toolbar installed, along with additional fees for each Web search initiated by those toolbars. Google and Yahoo struck such deals around 2006; The Wall Street Journal reported that year that Google was paying PC makers $1 for every PC shipped with a Google toolbar, plus additional fees each time a user performed a search.
An H-P spokeswoman declined to detail terms of the deal, though she confirmed the Yahoo arrangement expires at the end of this year. Angus Norton, the director of the Microsoft team responsible for marketing Live Search, didn't give financial details of the deal, but said its structure is "more or less the same" as the agreements Google and Yahoo struck with PC makers.
Mr. Norton said his staff was already considering a request for toolbar-deal proposals from H-P when Microsoft leaders decided to speed their online push last month. In a May 18 memo sent in the wake of Microsoft's failed bid to buy Yahoo, Microsoft's president of platform and services, Kevin Johnson, outlined a strategy for his company to expand its Web presence without Yahoo.
"The discussions started before the date of his memo, but were certainly accelerated after the memo was published," Mr. Norton said. Last month, Microsoft announced a cash-back program for Live Search users who buy items they find via Microsoft searches.
Greg Sterling, an Internet analyst with Sterling Market Intelligence, said that given Microsoft's small market share, it makes sense for the company to " pay a premium" to get its search engine widely distributed. "They just have to show people that Live is a good search engine," he said. "They have to get people comfortable with using it." Still, he added, only about 14% of searches are initiated through toolbars.
Microsoft said the custom search toolbar for H-P machines will include Hewlett-Packard applications such as photo service Snapfish. The toolbar will use Silverlight, a browser plug-in that Microsoft has designed, to run animation programs.
Microsoft's Mr. Norton said he doesn't anticipate the toolbar deal will run into the antitrust problems that Microsoft had with past attempts to make its browser the default on consumer PCs. In the late 1990s, PC makers that wanted Windows were required by license terms to follow Microsoft's restrictions involving browsers, requirements later found to be illegal. Now, by contrast, the company is on an equal footing with rivals in paying PC makers for a prominent position for its search service. "We're simply the small guy trying to compete with the big guy here," Mr. Norton said.
By: Justin Scheck
The Wall Street Journal; June 03, 2008
