Google shares slipped $17 on reports that Google was thinking of paying a billion dollars to Dell to bundle its software.
Under the plan, Dell would preinstall Google’s Toolbar and Desktop suite on 100 million computers, with Google paying as much as $1 billion over three years in fees. The Journal explains one of Google’s other deals, with HP:
Google pays it $1 for every PC that ships with a Google toolbar – a strip that sits atop a browser and enables users to easily operate Google’s search engine – and another 75 cents the first time a home-computer user taps the service, says a person familiar with the matter.
We can say all we want about viral marketing and how great the Google brand is, but if Google has to pay a billion freakin’ dollars, then maybe that whole word-of-mouth thing isn’t working as much as we’d like to thing. Google prides itself on growing out of quality, but it looks like installations of its software aren’t reaching the levels they expected. I never thought I’d see the day where Google had to buy customers.
This is exactly the sort of thing we’d expect from Microsoft, but we get it from Google. I can only hope that at least the deal is only for Windows XP PCs, as Google’s desktop search and sidebar in Vista would just be redundant and confusing to users.
As you can see in the snippets below, it looks like this all happened after a bidding war with Microsoft. Is it possible Microsoft’s new strategy is to get Google to “win” bidding wars and tear through its war chest as quickly as possible? Together with the AOL deal, aggressive bidding with Microsoft has cost Google five billion dollars, or 82% of its entire revenue for 2005.
Considering the same software Google is paying a billion dollars for will be on ever Vista PC, the only real loser here is AskJeeves, which previously had a similar deal with Dell.
Bob Kaufman, a spokesman for Dell, the world’s leading personal computer maker, said his company is evaluating Google software that PC customers could use to search both the public Web and for local information stored on their PCs.
“We can confirm that we are running a test with Google that could include a Google-powered Dell home page, Google desktop search and a Google Toolbar,” Kaufman told Reuters.
The report, citing unnamed sources, said Dell and Google are in talks to put Google software on as many as 100 million new Dell PCs following a bidding process in which Google edged out Microsoft and after Yahoo Inc. withdrew.
By some estimates, for Google to win broad product placement for its search software on major PC makers could require it to jack up customer acquisition costs by hundreds of millions of dollars from nearly zero now, analysts said.
“Where do you find almost 90% gross margins?” Hoefer & Arnett analyst Martin Pyykkonen asked, referring to Google’s current highly profitable business. “If it costs you more to acquire traffic, it could hurt margins,” he said.
Older Dell products used MyWay as the default search provider. The change to Google will probably kill off about 1/2 to 1/3 of Ask Jeeves reach.
The Wall Street Journal also notes that on top of Google wanting to load up their software they also want the default search box in Dell’s Internet Explorer browsers to point at Google
Nathan Weinberg writes the popular InsideGoogle blog, offering the latest news and insights about Google and search engines.
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