Google Shares Slammed On Billion-Dollar Dell Deal
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
While true that Google has been growing out of quality, there’s still a huge market they can reach: those who would use the features and services they provide, but would not go looking for and installing them. This move is to get your mom to start using the toolbar, not you. Word-of-mouth will work for some percentage of total internet users, but that doesn’t represent everyone that’s willing to use the service. More users, more revenue - this makes sense for Google.
Comment by Niraj | February 8, 2006
They can pay $1 since if they get them hooked, the users would click away at these ads.
Comment by Zoolander | February 8, 2006
Wow, investors don’t get it. If google gets google update into every dell machine, it has a season ticket to install new software of its choice, as well as to upgrade all of its current software. And trust me, they’ll make it earn, way more than MS ever did with Windows Update.
Comment by x | February 8, 2006
Google *is* the next Microsoft (if already hasn’t become one)
Kinda surprising to see that people still make exasperated statements seeing Google act in this manner
Comment by Murali | February 8, 2006
[…] But Nathan Weinberg wrote: 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. […]
Pingback by Ramblings of a Short Man » Blog Archive » Google on Dell | February 11, 2006
[…] $1 billion - That’s how much Google was rumored to be dangling in front of Dell in order to become the default search provider and have its software installed on Dell computers. We don’t know how much Google paid when the deal was done in May (word is it’s more of a revenue sharing agreement), but you’ll bet it’s a pretty penny. […]
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