Microsoft scores over Google and Yahoo, to become Verizon's preferred search partner

Microsoft, in spite of its ubiquitous presence on the world's computers, has found itself a distant third behind Google and Yahoo as far as Internet search was concerned. Therefore, its recent victory over its more popular search engine rivals to emerge as Verizon's service provider of choice must be especially satisfying to the software giant.

Verizon Wireless picked Microsoft over Google and Yahoo to provide Web search and mobile display advertising services to customers on its devices for the next give years.

The deal, rumored to be worth $500 million, begins in the first half of this year with Microsoft Live Search being offered on new Verizon Wireless feature phones and smart phones. Verizon is the US' No. 2 wireless network behind AT&T Wireless, serving more than 70.8 million customers.

Verizon CEO Ivan Seidenberg announced the deal at a Citigroup conference on Wednesday and Microsoft CEO Steve Ballmer confirmed it later in the day at the Consumer Electronics Show. Neither executive gave any details of terms.

The five-year deal is strategically critical to Microsoft, which didn't yet have a search deal in the United States. Competitor Yahoo powers AT&T and T-Mobile and Google is the search provider for Sprint. That's why Microsoft has fought so hard to wrangle the deal from the reigning search giant. Although Yahoo recently was able to extend its relationship with Verizon to provide its Web portal to computer users, it fell short in doing the same for Verizon's mobile customers.

Rumors of the deal surfaced month ago in the The Wall Street Journal, shrouded in supposition that Verizon distrusted the company since Google bid against it for 700 MHZ wireless spectrum a year ago primarily to drive up the asking price. Google later admitted its move was an attempt to boost open access, allowing any application or web service to run on any device.

Right now, only about 20 per cent of mobile phone users search, according to Nielsen Mobile. Citigroup analyst Mark Mahaney wrote in a recent report, however, that the market could grow to $2.3 billion by 2010.

With the completion of its Alltel acquisition this month, Verizon Wireless becomes the largest wireless provider in the US, surpassing AT&T. And the company says 25 per cent of its revenues come from wireless data - business-to-business data, multimedia services, and text messaging. Ballmer is hoping the deal will give Microsoft a leg up in the battle for control of the smartphone platform.

Google currently commands around 63 per cent of worldwide searches, with Microsoft in the 9 per cent range. It is unclear whether Verizon's massive US footprint will boost adoption of Live Search, or trigger growth spurt's in Microsoft's mobile display advertising.

Meanwhile, Microsoft's Live Search momentum will be supported on the PC side thanks to a new deal with longtime partner Dell, which said it will offer Live Search as the default search engine in the browser on most Dell consumer and small business PCs in 23 countries around the world starting February. Dell, which is abandoning Google in favor of Microsoft, will also include a toolbar powered by Live Search and Windows Live Essentials on new Dell PCs. 

Verizon shares rose 1.27 per cent to $31.90 in on the New York Stock Exchange. Amid a broad tech slump following a revenue warning from bellwether Intel Corp, Microsoft shares fell 6.02 per cent to $19.51 on the NASDAQ, where Google shares fell 3.61 per cent to $322.01 and Yahoo shares fell 2.23 per cent to $12.71.