Microsoft Corp. is moving closer to a new mobile search agreement with Verizon Wireless to become the default mobile search provider on the Verizon cellphones, a deal rival Google Inc. has been striving for, people familiar with the discussions said. Under the terms now being considered, Microsoft would share mobile search revenue with Verizon from ads shown in response to Verizon cellphone web searches, with guaranteed payments to the carrier of approximately $550 million to $650 million over five years, or roughly twice what Google offered, these people said.
Separately, Microsoft is negotiating a deal to put its Windows Mobile software in more Verizon devices. The combined value of the two deals could top $1 billion, these people said, though it isn't clear if Microsoft is offering to pay Verizon to use Windows Mobile, or would allow Verizon to use the software for free.
Verizon is tilting toward Microsoft because the software giant is offering significantly better financial incentives, but the telecom company is still in discussions with Google and the situation is fluid with both companies, these people said. A Google spokesman did not have an immediate comment. Verizon Communications Inc. Chief Executive Ivan Seidenberg said in a CNBC interview Friday that the company plans to make a decision soon. The Wall Street Journal earlier reported on the talks with Verizon Wireless, which is a joint venture of Verizon Communications and Vodafone Group PLC. Microsoft and Google have been competing over a variety of distribution deals and partnerships recently, with Microsoft showing that it is willing to outbid Google. Microsoft beat out Google for an investment in social-networking site Facebook Inc. last year, and more recently the two have jockeyed over different deals with Yahoo Inc. Now the companies are both aiming for the rights to be the default search provider on cellphones. While a user can visit any search engine through the browser on their mobile device, carriers and Internet companies believe usage will increase when they put search services in prominent places on phones. Web searching on cellphones is still new to most consumers. Only about 7.7% of cellphone users, or 17.6 million people, accessed Web search engines through their mobile phone browsers in September, according to comScore M:Metrics Inc. But Google is an early leader, with about 60% of users opting for its engine, while only 36% use Yahoo and 10% use Microsoft, comScore said. Google already has a search and advertising partnership with Sprint Nextel Corp., while T-Mobile USA Inc. is selling the G1, a smartphone that runs on Google's Android software and has Google's search bar on its home screen. AT & T Inc. plans to make Yahoo the default search engine for its MEdia Net Web portal, accessible on most high-end phones. Foreign carriers such as Deutsche Telekom AG's T-Mobile unit in Europe and KDDI in Japan already have partnerships in place with Google and Yahoo. Skeptics say these partnerships ultimately won't matter much, as surfing the Web becomes easier on phones and consumers gravitate to whatever search engine they are most comfortable with. But Roger Entner, a telecom analyst with Nielsen IAG, said deals like Verizon's are an opportunity for Internet companies to leap ahead of rivals. "This is a market that hasn't been divided up yet," he said. The two tech giants also are trying to push their mobile operating systems, the software that interacts with cellphone hardware and runs all other applications. Microsoft Windows Mobile, which has been in the market for seven years, already powers many Verizon phones. By contrast, Google's Android just hit the market this year and Verizon has so far declined to carry it.
-Amol Sharma and Nick Wingfield
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