DELL INC.

Dell partners with Google

Google software will come pre-loaded on Dell PCs.

By Dan Zehr
AMERICAN-STATESMAN STAFF
Friday, May 26, 2006

Dell Inc. will load a package of Google Inc. software on millions of its personal computers, part of a deal that gives Google a new weapon against Microsoft Corp. and marks the second time in a week that Dell has broken ranks with a top partner.

Dell will pre-install Google's desktop-search software on its PCs and make Google's Web-search tools the default on Internet Explorer, the Microsoft Web browser that comes standard on Dell PCs.

Dell will start including Google products on PCs by the end of the month, Dell said. But it did not say how long the program will last. The two companies' stocks were largely unaffected by the deal, which had been rumored for months.

The companies will share in the revenue generated by the tools, Google CEO Eric Schmidt told analysts at a Goldman Sachs conference in Las Vegas. They also will partner on a co-branded Web page.

Schmidt and Dell spokesman Jess Blackburn declined to provide more detail on the financial arrangements, such as whether Google will make payments to Dell.

A prototype page on Google's Web site showed the Dell logo and Google search bars at the top and bottom, with features such as news headlines and weather. The site resembles portals offered by Yahoo and other companies that are trying to make their Web sites the de facto home pages of Internet users.

This is likely to be the first of many deals between the companies, said Schmidt, who added: "There's probably more to come."

Google is locked in an escalating battle with Microsoft and Yahoo Inc. to lure users to their increasingly valuable Internet-search applications. Winning a place on the setup of Dell PCs is a coup for Google.

"The default is huge," said Roger Kay, a PC analyst and president of Endpoint Technologies Associates Inc. "Microsoft's own research shows people tend to stay with what they're given" when they first set up their PCs.

Microsoft long dominated the desktop screen of PCs, so much so that it drew the attention of U.S. and European regulators, who demanded it open up some applications to its rivals. The company reached a deal with the U.S. Justice Department in 2002, but it's still wrangling with the European Union.

The U.S. decision "seemed like a slap on the wrist," Kay said, "but it enabled the PC hardware (makers) to take some of the power back from Microsoft."

The frenzied Internet-search battle could help generate more money for computer makers. Companies such as Dell and Hewlett-Packard Co. could charge more and more to put software on desktops and set defaults for programs on their machines.

"Eventually, we could see free PCs subsidized by revenue from things like this," said longtime PC-industry analyst Rob Enderle, head of the Enderle Group in San Jose, Calif.

Microsoft might not be too upset about the Google deal, at least not right away, Enderle said. Google's new position could help Microsoft prove that it doesn't hold a monopoly on the PC desktop, he said, blunting accusations it has faced.

"At this point, Microsoft is more interested in saying, 'We really don't control the desktop,' " he said. " 'We're not locking anybody up.' "

That attitude probably would change as the monopoly charges fade and competition heats up for the prime real estate on consumers' desktops, he said.

"If Dell were to pop up and say how much better it is or move more broadly to other competitors," Enderle said, "I'm sure the (Dell and Microsoft) executives would have a meeting."

The break with Microsoft, however small, is the latest in a string of moves Dell has made to spark revenue growth, which slowed to 6 percent in the first quarter.

Earlier this year, it acquired computer maker Alienware Inc. to boost its presence in the high-end gaming PC space.

And last week, Dell said it would begin using chips from Advanced Micro Devices Inc. in some servers, breaking its tradition of using only Intel Corp. processors.

dzehr@statesman.com; 912-5932