Microsoft Corp., capitalizing on Google Inc.'s regulatory snarl, is working to steal a deal with Verizon Wireless away from its rival.Microsoft has gotten the mobile carrier's attention by offering a sweeter deal to put its search service and related advertising on Verizon phones. Microsoft is also offering more generous revenue sharing and a guarantee of substantially higher payments to Verizon, say people familiar with the matter.
Google has been in discussions for months with Verizon to make its search engine the default on most Verizon phones, according to these people.
Verizon Wireless, the No. 2 U.S. wireless carrier by subscribers and a joint venture between Verizon Communications Inc. and Vodafone Group PLC, is considering both companies' offers and hasn't made a final decision, though it is leaning toward Microsoft, these people add.
Microsoft's move -- following its failure to acquire Yahoo Inc. for $45 billion earlier this year -- shows how it is trying to put together a new arsenal against Google. It is taking the step just as Google's search-ad partnership with Yahoo fell apart Wednesday amid opposition from the Department of Justice.
Microsoft has found an opening recently partly because Google has been busy dealing with the DOJ's review of its Yahoo partnership, according to the people familiar with the matter.
Now that Google has withdrawn its proposed Yahoo pact, it is possible it will push harder for the Verizon deal, these people said. It isn't clear whether Google is willing to match Microsoft's financial incentives for Verizon. A Google spokesman declined to comment on the Verizon negotiations.
Google may be hampered by the increased scrutiny it has received recently from regulators. That raises questions about what sorts of search deals the Internet giant may be allowed to pursue, just as the company -- which relies on online ads for 97% of its revenue -- needs to diversify to keep up its growth.
In an interview, Google Chief Executive Eric Schmidt said the Justice Department's moves were "unlikely" to affect deals Google tries to do next. "The particular issues around this one are fairly unique," he said. "I don't think it will change the way we do business. I don't know about perceptions."
At Microsoft, executives have sought to exploit growing concern among government officials about Google's dominance of the online search and advertising markets. Microsoft executives spoke out against the Google-Yahoo search partnership, calling it "illegal."
Microsoft has aggressively sought to woo Google partners with favorable financial terms, according to people familiar with Microsoft's efforts.
To many, there's an irony in Microsoft benefiting from concerns about another company's market power. For more than a decade, the software behemoth has fought bruising antitrust battles with government regulators in the U.S. and abroad, centered on the dominance of its Windows operating system.
The Google-Microsoft tussle over Verizon comes as the rivals clash on more fronts. Google recently completed its Android mobile operating system, a competitor to Microsoft's Windows Mobile software, which runs advanced applications on cellphones. Google also recently launched its own Web browser, Chrome, to challenge Microsoft's Internet Explorer.
Consumers can use search engines on cellphones by typing in the relevant Web address. But wireless carriers believe they can raise usage dramatically by putting search tools in easier-to-find places on their phones. Search providers, meanwhile, can benefit from closer integration with carriers, which will allow more targeted advertising to consumers, analysts say.
