Verizon CEO Ivan Seidenburg let slip today what was once long rumored: Microsoft is the “winner” of a deal to provide search services on Verizon’s 70 million+ handsets. The other bidder was Google.
We don’t yet know what’s being exchanged in the deal, but it is odd that Microsoft was able to outbid Google despite being a distant third in search. Google is reputed to be immensely more profitable than Microsoft’s search arm on every metric, so we’d expect Google to win the deal because they have more to gain from it. That’s usually how auctions go and why Verizon won the 800mhz auction and not Google.
So why did Microsoft win? One alternative is that what applies on the web does not apply to mobile. Microsoft could actually be more profitable than Google, perhaps because they can build the services on diverse hardware cheaper (after all, they just wrote a gazillion new Vista drivers and those people need devices!). But if Microsoft has the mobile secret sauce, why is Windows Mobile such a laggard?
The more likely answer is that Microsoft is much more optimistic than Google about distant future profitability. Since textual search is pretty mature and unlikely to actually increase in profitability, we should anticipate that Microsoft expects to build some new web services for Verizon mobile phones. These could include e-mail (bringing push Exchange e-mail to all devices), multi-media (e.g. make V-CAST compatible with Zune Marketplace), mapping (marry VZ Navigator with Virtual Earth) and new forms of geographically aware search. Live Mesh should also have a place in the picture.
As for Google, they are probably resigned to the view that consumers will always have the option to choose them from Verizon devices just as most Internet Explorer users choose Google as their default. Arguably, this becomes a greater problem as the hardware systems become more advanced. The more advanced a system becomes, the more difficult it is to keep it closed because a system that showcases advanced capabilities also makes users feel reasonable to ask: if you can do this, why not that? Why can’t I have it my way? And they switch, or find a competitor that’ll let them.
