UPDATE: Dell Agrees To Install Google Software On Computers

Google Inc. on Thursday said Dell Inc. has agreed to ship 10s of millions of computers with Google software installed, a deal that takes the search engine's battle with Microsoft Corp. to the latter company's most prized territory -- the desktop.

Eric Schmidt, chief executive of the Mountain View, Calif., search engine, announced the deal during a question and answer session at the Goldman Sachs 7th Annual Internet Conference in Las Vegas, Nev. Schmidt confirmed the multi-year deal, which was reported earlier in the day by The Wall Street Journal, but gave only a few details before launching into a discussion about the online advertising market.

"It's very good for them and very good for us," said Schmidt, who declined to give financial details, other than saying, "Think of it as both companies sharing revenue."

The deal has Dell pre-installing Google's search application for scouring a computer hard drive and emails, and a Web browser toolbar linking to Google's online search engine and other services. The applications would be accessible through a side pane on Internet Explorer 6, the current version of Microsoft's Web browser.

"It's essentially a turnkey solution for search and information in general," Schmidt said.In addition, Dell would set the homepage of the computer's browser to a co-branded Dell/Google Web site, and would make Google the default search engine.

The deal is seen as a big boost for Google in its heated competition with Microsoft, which is investing billions into search and other online services in order to grab a bigger slice of Google' bread and butter -- Web advertising related to search results. Analysts say that consumers are more likely to use software if it has been pre-installed in their computers.

In partnering with Dell, Google goes on the offensive by taking the rivalry to Microsoft's most important product, the Windows operating system that monopolizes the PC market. At the same time, Google moves toward solidifying its lead in online search by getting its search engine in front of PC buyers.

"Overall, this is just definitely a big win for Google," Dustin Rector, senior analyst for Tier 1 Research, said. "They've now found a way to get on the PC. It's a big strategic move in competing with Microsoft in the marketplace."

The deal comes on the heels of Google's complaints that Microsoft is making it too difficult for people to switch the default search engine in the upcoming version of Internet Explorer, the software maker's market-dominating Web browser. The Justice Department has said that IE 7 does not present a problem for competitors.In losing before the government, Google apparently decided to fight fire with fire in becoming the default search engine in Dell PCs.

"It's the right strategic initiative for them going forward," Rector said. "It was the right move."

Indeed, while Google is the clear leader in online search, it lags way behind rival Yahoo Inc. and in some cases Microsoft MSN in the most popular portal services.

In Web mail, for example, Yahoo Mail has a 42 percent market share, followed by MSN Hotmail, 23 percent; and MySpace Mail, 20 percent, according to Web metrics firm Hitwise. Google Gmail is far behind at less than 3 percent. In business and finance, Yahoo again leads with 35 percent, followed by MSN Money Central with 13 percent. Google Finance, on the other hand, is 40th in the market with slightly more than a quarter of one percent.

In search, however, Google has a big lead. In April, Google had a 43.1 percent share, compared with 28 percent for Yahoo Inc. and 12.9 percent for Microsoft MSN, according to ComScore Networks.Dell had sought bids from Internet companies for having their software installed in 100 million computers. Yahoo eventually pulled out of the running, and Google beat Microsoft, the Journal said.

While a similar deal would have been a big win for Yahoo too, the leading Web portal apparently felt its partnership with EBay Inc., also announced Thursday, was more important. Rector believes a future merger between the two companies is certainly possible.

"There's tremendous potential with an EBay-Yahoo merger," Rector said. "Those business would have a lot of synergy and potential integration down the road."

Yahoo is a tremendous advertising machine around content revolving around news, finance, entertainment, social networking and other services, Rector said. On the other hand, EBay is a "three-headed monster," with its marketplace, Internet telephony unit Skype, and online payment service PayPal.