So Verizon is apparently well on its way to cutting a search deal with Google. Terms are still rumored, but it looks like Verizon would put the Google search bar on is phones — and maybe on its Web portal and FiOS video services as well. In exchange, the two would share search revenues. The deal would give Google preferential access to 68 million subscribers — a much quicker router to mobile success than building and selling an entire operating system from scratch. Sure these two have been rivals in the past — competing for 700Mhz spectrum and vying over net neutrality issues. But AT&T is in bed with Yahoo for search, which makes a Verizon/Google pairing all the more strategic.
Also notable: Verizon’s search option already comes in second to Google on Verizon devices. According to Nielsen Mobile (via the NY Times story on the deal), of the 36 million VZW users who access data using their phones, about 13.1 million search the Web. About 3.8 million of those users already access an off-deck search engine like Google or Yahoo; only 2.3 million use Verizon’s search tool — even though it’s more prominently featured.
That points to at least one thing Verizon will be getting in this deal: association with the strong Web/media brand that is Google.com. If mobile users want to see Google on their phones, Verizon would be smart to give it to them.
But is that enough to make the deal worthwhile for Verizon?
It’s interesting to note that what appears to be holding up the deal, according to press reports, are negotiations over how much information Google can retain about Verizon’s customers and their searches.
Here’s where things get more interesting.
One way this deal could end up is that Verizon gets a few advertising dollars, but Google gets the real prize: access to millions of users, a data store of their profiles/location data and the ability to serve those customers targeted ads.
What Verizon — and other network providers — should focus on is crafting a deal where not only are they sharing in Google’s straightforward ad-serving revenues but they are extracting value (via straight fees or better revenue share terms) for their information about their users. Whether extracted from their billing systems or lifted in real-time for their activity on the network (such location information or DPI-extracted knowledge), operators should be selling this information to Google, which in turn should be using it to extract higher CPMs and better ad rates from its advertiser customers.
In this way, all parties do what they do best: operators run their networks and manage their customers; Google builds search algorithms and sells ads. And in the end all boats rise.
Sure, Google could do a lot of this themselves. They could use cell tower triangulation or GPS for customer location and put their “cookies” on steroids to track mobile users like Web users today.
But that’s no more a winning proposition for them than building a search engine is for Verizon or other operators.
Want to see a model of how an easy money — yet high-impact — Google deal works? One where each party does what *they* do best and each side comes out a winner?
Consider Mozilla, the open source holding company that builds — and gives away for free — the Firefox browser. It recently extended for another three years a deal with Google that makes it the default search engine in Firefox. In 2006, it was making almost $60 million off that arrangement; today market watchers figure they make two to three times that — and that’s for simple preferred placement.
But Verizon is no Mozilla, and a Verizon/Google search deal should use that as a starting point in a deal between digital equals.
