Microsoft could win Verizon search deal, and still lose

The battle for mobile Internet users’ hearts and minds keeps heating up

, and Silicon Alley Insider’s Dan Frommer has an interesting take on the latest machinations. The Wall St. Journal reported recently that Microsoft is trying to steal Verizon’s search business away from Google. Google and Verizon had been close to a deal that would have made Google the default search engine on the No. 2 wireless carrier’s mobile devices. But now Microsoft is offering Verizon a sweeter deal that just may lure it away. On the face of it, things look bad for Google. But Frommer digs a bit deeper and says that even if Microsoft wins, it may lose.

According to the WSJ report, Microsoft is “offering more generous revenue sharing and a guarantee of substantially higher payments to Verizon.” But Frommer says that even though Microsoft’s deal seems more lucrative, it’s all predicated on how mobile users decide to search.

Today, only 9% of mobile subscribers use search, but those who do like Google. According to comScore M:Metrics, 63% of all mobile searches today use Google, with second-place Yahoo garnering just 35% (and Microsoft Live Search not even making the rankings). So why would mobile searchers switch to Microsoft? To date, using the default search is easier on phones–that’s why the search vendors are racing to lock down the default placement on various carrier devices. But as phones evolve to be more PC-like (like the iPhone and the G1) using Google–most users’ tried-and-true search tool–is almost just as easy. As Frommer says:

Let’s pretend Microsoft wins this one and mobile search catches on. Will mobile searchers — who already seem to prefer Google — even bother using the “default” Microsoft Live search engine? Sure, it’s harder to navigate on a mobile phone browser than it is on a computer, so we assume “default” positioning is more important on mobile phones than on PCs. But if people prefer using Google on their PCs, will they settle for the easier, default Microsoft search on their phones? Or will they bookmark Google and go there instead?

If mobile customers choose the latter scenario–as multitudes of PC users have before them–then Google gets the revenue, and Microsoft and Verizon get nothing. So even though Microsoft wins, it loses. Interesting.