Google Deal Might Help Dell Talks With Microsoft

The agreement to bundle Google software might give Dell--and other hardware vendors--the basis to pressure Microsoft when it comes to Vista prices, one consultancy says.
Dell Inc.'s agreement to ship 10s of millions of computers with Google Inc.'s desktop search software could give the computer maker leverage in price negotiations over Vista with Microsoft Corp., a research firm said Friday.

In addition, Gartner Inc. said in its latest news analysis that it expects at least three more of the top PC vendors to strike similar deals with Google. Dell and the online search engine giant announced May 25 that Dell computers would ship with Google software, and that the default homepage on Microsoft Internet Explorer Web browser, which ships with Windows, would be a joint Web site of the two companies.

Dell is Microsoft's biggest customer for its Windows operating system, and the software maker has already signaled intentions to raise the average prices for Windows when Vista launches in January, according to Gartner. Dell, however, has struggled to meet financial expectations in the last two fiscal quarters and is expected to try to minimize any Windows price increase.

In between these opposing desires by the long-time partners is Microsoft's intent to try to mitigate the impact of Google software shipping with new PCs.

"Dell showing that they'll work with other folks in areas that Microsoft competes may get them more attention from Microsoft," Gartner analyst Michael Silver said.

Any commercial offer from Microsoft, however, would have to be enough to counter the per-PC payments from Google, Gartner said in its news analysis.

"Whether such a response involves direct payments or a reduction in prices for Windows, Microsoft's obligation to offer equal terms to original equipment manufacturer (OEM) buyers means the result would be a reduction in overall revenue and margins," the analyst firm said.

The Dell/Google deal is the latest twist of a long-time practice in which software makers pay computer manufacturers to get their icons on a desktop, Silver said.

"This is really just an evolution of what hardware vendors have been doing for years," Silver said.

Editor's Choice
Brian T. Horowitz, Contributing Reporter
Samuel Greengard, Contributing Reporter
Nathan Eddy, Freelance Writer
Brandon Taylor, Digital Editorial Program Manager
Jessica Davis, Senior Editor
Cynthia Harvey, Freelance Journalist, InformationWeek
Sara Peters, Editor-in-Chief, InformationWeek / Network Computing