Google May Dump MySpace Search Deal


Barclay’s analyst Doug Anmuth thinks Google is considering ditching its disappointing $900 million search-monetization deal with MySpace.  If so, good riddance.  Google has had a devil of a time making the deal work economically, and there’s no need to throw good money after bad.

As the arms race with Microsoft heats up, Google is wisely refusing to pay silly prices for distribution and has allowed Microsoft to “win” a couple of big deals with Dell and Verizon.  This is smart: Google has become so dominant in search that it doesn’t need to do bad deals to block a competitor that is still running a distant third in the sector. 

That said, Microsoft seems determined to buy share at any cost.  If Google dumps Myspace, therefore, Microsoft will presumably be glad to overpay for the opportunity.

Doug Anmuth:

We believe Google’s recent decision to not renew its toolbar distribution deal with Dell (as of February 2009 Microsoft Toolbars are pre- installed on the majority of Dell PCs, replacing Google’s toolbar) and walk away from a potential mobile search partnership with Verizon  are examples of the company’s shift in strategy with respect to guaranteed obligations. 

In our opinion, Google no longer sees the need to win distribution at any cost, and we also think it is internally re-evaluating its relationship with MySpace which includes ~$900
million in payments in the 3.5 year term leading up to mid-2010.
  Importantly we do not believe Google would lose share as a result of this shift. 

We agree.  A significant percentage of MySpace users will likely continue to use Google for search even if Google is no longer powering MySpace’s internal search.