SAN FRANCISCO (AdAge.com) -- Microsoft has elbowed out the much larger competition to become the default search engine on Verizon Wireless handsets, ending a drawn-out battle to mine advertising revenue from what is expected to be the largest U.S. cellular subscriber base.
Under the five-year deal which begins in the first half of 2009, Microsoft would provide the on-deck portal, as well as the local and internet search engine on the handsets of Verizon's some 70 million customers. The software behemoth would also provide mobile-advertising services on behalf of Verizon.
"Microsoft will manage search and display advertising on Verizon's Mobile web service, creating a one-stop integrated way for advertisers and ad agencies to reach mobile consumers," the company said in a press release.
Much Needed Boost
The company announced the deal on the eve of the annual Consumer Electronics Show in Las Vegas, as Microsoft CEO Steve Ballmer took the stage for the show's first keynote. Microsoft and Verizon declined to disclose details of the deal, but analysts estimate that carriers pocket 60% to 70% of the advertising dollars, and it is believed that the software giant sweetened the pot with aggressive revenue-sharing incentives.
For Microsoft, which has yet to make substantive headway in mobile search, the partnership provides a much needed boost. Though Microsoft struck an alliance with Sprint more than two years ago, Google has since emerged as that carrier's dominant search partner.
And when Verizon officially merges with Alltel, Microsoft will have access to the largest U.S. cellular subscriber base, which will exceed 80 million subscribers.
Through its Live Search app, Microsoft is offering a suite of mobile functionalities, including voice commands and location-aware searches, including maps, directions, traffic information and weather -- all things that let advertisers target users with more granularity. Other search results would include news and entertainment content, including songs, videos and games that can be downloaded.
More Cred With Advertisers
Analysts say the deal represents a big win for Microsoft -- and credibility with advertisers is a key prize. Greg Sterling, an independent analyst, said given the location-aware data that Verizon would make available for the search queries, the deal appears more tightly integrated than other operator partnerships struck by Google and Yahoo.
"The deal will bring with it all the potential targeting capabilities," Mr. Sterling said. "This will be impressive to advertisers and Microsoft will be able to use it to its advantage and say 'We have the exclusive relationship with the largest carrier.'"
Google also leads in PC-based search with a share of 63.5% of the category to Microsoft's 8.3%, according to ComScore's November data. Yahoo has a 20.4% share of PC-based search. And although Microsoft's history with online search has been less than stellar, it didn't deter Verizon from signing on.
"Verizon obviously felt confident with the quality of Microsoft search to go with it. ... It's saying to its users, 'I present you with this experience,'" Mr. Sterling said.
Until now, Verizon had been the only major wireless operator without a search partner and as it shopped around for one the showdown was widely believed to be between Microsoft and Google. According to a November Wall Street Journal article, Microsoft was willing to pay Verizon approximately $550 million to $650 million over five years for real estate on the carrier's deck. (Subscribers are not locked into using a carrier's on-deck search engine, but for many of them the carrier's deck, akin to a home page, is their launching pad.)
Carriers have been wary of search companies, which they view as competitors trying to cash in on their network traffic. But as mobile data usage increases, search queries are expected to jump in lockstep and consumers will demand optimal search experiences, representing an opportunity to extract ad dollars. Moreover, outsourcing the advertising sales is the right strategy for carriers because mobile marketing is still a relatively minuscule piece of ad spend overall, said Julie Ask of JupiterResearch.
Nonetheless, search-related advertising is expected to balloon over the years, according to ABI Research, rising from $813 million in 2008 to $5 billion by 2013.