Google could dole out up to $1bn over three years for the rights to have the Google Toolbar pre-installed on Dell PCs.
The PC maker confirmed today that it is piloting sales of PCs pre-installed with Google software. It was smoked out by the Wall Street Journal, which today published a well-sourced article on the battle for PC "real estate", conducted by Microsoft, Google and Yahoo!.
According to the paper, Dell set up an auction last autumn in which it invited Internet firms to bid for the rights to pre-load software on its PCs. It says Yahoo! withdrew from the race and then Google went on to beat Microsoft in a straight fight.
Google has already signed up for bundling with HP. It pays $1 for every PC installed with a Google toolbar and 75 cents for the first time the user types in a query on his spanking new HP PC, the WSJ says.
Google is making something of a habit of out-bidding Microsoft: in December, against industry expectations, Google beat back Microsoft to retain the AOL search contract. The cost: $1bn in return for five per cent of AOL stock. This was about double the price most sensible people thought AOL was worth, so either Google knows something the rest of the world does not, or it is very keen to ring fence its market share.
According to the WSJ, the first ten minutes a PC is switched on is a "magic" time for the bundlers. The buyer is happy, excited and in the frame of mind to sign up for software and ISP offers. Those choices are rarely changed during the lifetime of the PC.
So getting bundled onto PCs is a well-worn path for software companies and ISPs - in the US, AOL did very well out of being pre-installed. Microsoft and Symantec are notable exponents of the pre-loads as well. Through its dominance of the PC operating system and of office software - which, of course, it charges for - Microsoft has had it relatively easy for years. When it found the competition a little tougher - as with Netscape - it could always strong-arm the PC OEMs into staying onside. That weapon has long been dulled - the fusillade of anti-trust lawsuits has seen to that. Of course, Microsoft still has Office and it still has the de facto operating system of choice for the PC masses. But it will have a tougher time in defending its Internet Explorer and MSN franchises.
Google is a formidable competitor, and Yahoo! could be too - if it overcomes its distaste for bid-up battles. The bigger the fight, the better it will be for the PC makers. They are used to being dictated to by their major suppliers, and most of them are used to making little or less than no money. So it is nice that for once they can turn the tables.
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