SAN FRANCISCO (AdAge.com) -- Last January, on the eve of the annual Consumer Electronics Show, Microsoft CEO Steve Ballmer took the stage and announced his company would manage the search queries and advertising inventory on the home screen, or deck, of Verizon phones in a multi-year deal reportedly worth $600 million.
It was a huge coup: the search underdog teaming up with the largest mobile carrier to try to create some momentum in the next great digital battlefield of mobile. So why, then, is rival Google all over Droid, the object of Verizon's $100 million holiday blitz?
Turns out Google-branded phones are one exception to Microsoft's default search-provider status, according to someone familiar with the terms of the deal. This all but assures Google of prime placement on Android devices sold by Verizon, of which more will surely come. Microsoft, meanwhile, has squandered away what some observers say should have been an opportunity to make further inroads with Verizon.
"Microsoft dropped the ball," said Phuc Truong, managing director of Mobext, Havas' mobile marketing agency. "It was well-positioned to do something deeper with Verizon, and within that time frame you would have thought they'd done something more to solidify that relationship."
Whereas Google's hand in guiding Android's development allowed it to preload its services on most Android devices in the U.S., Microsoft hasn't capitalized on its mobile-operating software by working with carriers and handset makers to stuff its search or content assets into Windows Mobile phones. It's another example of how Google has consistently trumped its search competitors in mobile, despite late entries in both search and handset software.
Google further widened its lead last week when it dropped $750 million in stock on the leader in the mobile ad-network space, AdMob, and got its claws in retail -- Best Buy lets shoppers watch demos of Google mobile apps, and the blue-shirts even install the apps for free. But it's biggest coup is arguably its Verizon Wireless relationship.
The companies are co-developing a new crop of smartphones based on the Google-backed Android software. The first of these, the Droid, came packed with Google utilities, including a free, turn-by-turn navigation service, which potentially gives the company a leg up in serving location-based advertising.
For the foreseeable future, all Android phones sold by Verizon Wireless will likely bear Google's stamp and the reportedly chummy relationship between CEOs Eric Schmidt and Lowell McAdam should only cement that collaboration. (Google has also undercut another search competitor, preloading its services on Android smartphones sold at T-Mobile, whose "official" search partner is Yahoo.)
For its part, Microsoft says it's happy with its Verizon relationship. Even as deck traffic slows, its presence there remains strategically important, said Jamie Wells, director-global trade marketing, Microsoft Mobile Advertising. "We believe that the carrier deck will continue to remain an essential element to the mobile-internet space," he said. Bing will be the default search box on over 30 Verizon phones by year-end.
Mobile search is forecast to be big business, set to displace SMS and display as the top mobile ad revenue driver, according to the Kelsey Group. Mobile ad revenue will more than quadruple from next year's level to $3 billion in 2013, with search responsible for 73% of that, up from 24% in 2008.
Google has widened its dominance in mobile web search over the last year, with more than 65% share of mobile web search volume, compared to 56% a year ago, according to Nielsen. Yahoo's share is 16% and MSN/Bing's is 6%.
Still, no one's counting Microsoft out. "Microsoft is a three-iteration company," said Ben Sternberg of the investment bank Raine Group, who focuses on digital media. "Their first version of anything is buggy, the second is OK, and the third makes them money. They have a lot of cash, and they do think for the long term."