Microsoft's Keyser Söze Opportunity

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The greatest trick Microsoft ever pulled was convincing Apple that Google didn’t exist.

If Microsoft plays its cards right, that may be a statement we’re saying years from now.

What does that mean? Aside from being a riff on one of the best lines in movie history, what I mean by that is: imagine if Microsoft was able to convince Apple to make Bing the default search engine on the iPhone, rather than Google. Leading up to Apple’s press event last month, rumors were swirling about this possibility. As is always the case with Apple, it’s hard to know how legitimate those talks were or if they were just some ploy to get something else it wanted. But from Microsoft’s perspective, it should be more than wishful thinking.

While the iPhone may not control the overall mobile sphere in terms of sale, it does control mobile web browsing. And increasingly, that’s becoming a popular way for users to browse the web. Basically since its inception, stats have the iPhone at the top of the pile when it comes to mobile browsing share. Yes, as more and better Android phones become available Android can and probably will leapfrog it. But the fact is that the iPhone is going to remain a huge factor in web browsing going forward. And certainly, Microsoft won’t be able to cut a deal with Google to feature Bing on Android.

Other recent numbers have Google seeing 1.46 million impressions a month from the iPhone alone. Bing? It gets just 2,387 impressions from the iPhone. That’s pretty incredible.

So how much are those million and a half impression worth to Google? Apparently, north of $100 million a year via a revenue share with Google, Silicon Alley Insider reported today. For Microsoft to woo Apple away from Google, it’s going to have to cough up a lot of money. But I would argue that it’s definitely worth it. And Microsoft actually has a history of such maneuvers.

Remember, when Microsoft bought a tiny share of Facebook in 2007, everyone was up in arms over the extrapolated $15 billion valuation it gave Facebook. But the truth is, Facebook was never worth that much (at least not at the time) because Microsoft was never interested in purchasing it at that price, nor was anyone else. Instead, Microsoft was making a strategic investment to secure the rights to Facebook search and advertising. More importantly, its $240 million investment for less than 2% of the company insured that Google wouldn’t be able to cut a deal with the social networking giant.

And that deal worked out well for Microsoft. Who knows if Microsoft made any money off of it, but it doesn’t really matter. What matters is that thanks to that initial deal, Microsoft and Facebook just got done renegotiating a new one, which will now see Facebook take over its display ads, but give a larger role to Bing for web search. With Facebook surging past 400 million users, this search deal is key for Microsoft and it undoubtedly blunts the loss of the display ad business (which probably wasn’t doing all that great anyway). Again, more importantly, it means Google can’t cut a deal with the social network to power its search.

And Google loves those deals. Not only did it strike one with MySpace (that didn’t work out so well), it has ones with AOL and others. But the key one for it may be the deal with Mozilla to make Google the default search engine within the Firefox browser. Google is paying something like $75 million a year to Mozilla for this privilege (based on 2008 revenues). That’s relevant because it’s the same type of deal Google now has with Apple for the iPhone. And it’s the deal Microsoft needs to get.

Despite pouring resources into its online division, Microsoft continues to bleed money there. And despite some success for Bing this year following its launch, the recent numbers indicate that it’s stealing search share from soon-to-be-search-partner Yahoo (assuming the deal goes through), rather than Google. Top search billing on the iPhone would ensure Bing is eating into Google share instead. And for that reason, price really shouldn’t be an issue for Microsoft if it’s serious about Bing battling Google Search. This is biggest and best opening it has.

There are no shortage of people who believe that Google, Bing, Yahoo, and the others are now all basically on par with each other when it comes to search results. Certainly Microsoft and Yahoo believe that to be the case (while Google, of course, does not), but others do too. The problem, as Microsoft and Yahoo see it, is that users are simply used to Google so they keep going back to it rather than trying something new. That’s exactly why Yahoo is moving away from the backend of search and more towards prettying up results on the front-end to give users a better experience. Microsoft has an even easier way to prove this: cut the deal to make Bing the default engine on the iPhone. If users don’t start complaining, we’ll know it’s true.

And the Microsoft/Apple deal could go farther. As long as both sides are cutting a deal for the iPhone, why not cut one to make Bing the default engine on the iPad as well? And how about Safari for the Mac in general? Every little bit of share gained is a good thing for Bing. And if the iPad proves to be a huge success, it could end up being a lot more than a “little bit” of search share.

But would Apple do this — cut a deal with its longtime rival?

Absolutely, provided it too believed that Bing’s results were at least on par with Google’s. In fact, at this point, Apple might even prefer a deal with Microsoft over one with Google given the war brewing between the iPhone and Android. With every search done on an iPhone, Apple is simply giving Google more fuel to pump into Android.

Microsoft’s alternatives aren’t pretty.

It can hope and pray that Google will rest on its laurels and let its search engine prowess wither in the way that Microsoft itself rested on its laurels when it had 90% market share with IE.

Or it can hope that Windows Mobile stages a dramatic turnaround (Windows Mobile 7 is expected to be unveiled at Mobile World Congress shortly) and becomes the dominant mobile device for searching the web, with Bing in tow.

I don’t see either happening.

Or Microsoft could keep pumping money into advertisements about Bing and watch as it continues to eat away at Yahoo’s search share. But Microsoft would likely get much more bang out of those bucks if it simply cut the deal with Apple. And the time seems right for that to happen, if it ever will.

Microsoft could play the role of the villain that gets its longtime nemesis to do exactly what it wants. And just imagine if that helps Microsoft pull its entire online division out of its funk, thus giving the giant the thing it needs to battle the likes of Apple and Google going forward. That would be Microsoft’s ultimate goal in pulling such a deal off, after all.

And then Microsoft can exit the negotiating room — and like that *poof* be gone.

[images and videos: MGM]

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