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Monday, June 2, 2008 - Page updated at 06:14 AM

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Microsoft, HP will be search partners

Seattle Times technology reporter

The next piece of Microsoft's full-speed-ahead charge for Internet search share is an exclusive distribution deal with Hewlett-Packard.

HP's consumer PCs sold in North America will have a custom search toolbar and Internet Explorer will default to Microsoft's Live Search engine beginning in January, Microsoft plans to announce today.

This arrangement with the No. 2 PC seller in the U.S. is the largest search-distribution deal yet for Microsoft, which is struggling to gain ground on Google and Yahoo.

With the deal, Microsoft's Live Search will be positioned at a valuable entry point to the Internet for millions of consumers. It also displaces Yahoo, the erstwhile acquisition target and possible Internet search partner that landed a similar arrangement with HP in 2006.

"We've been very focused on driving a distribution partnership where we could reach more consumers, which will drum up broader awareness for the product," said Angus Norton, senior director of Windows Live Search.

In the first quarter, HP shipped 3.9 million PCs in the U.S., according to IDC. (This figure includes both consumer and business PCs.)

Microsoft signed a global distribution deal for Windows Live, including a Live Search toolbar, last year with Lenovo. Google did a deal along the same lines with Dell in 2006.

Awareness is a key issue for Microsoft, because even if Live Search is on par with or better than Google in terms of search results and relevancy, many people don't know about it.

And even for those who are aware, they often don't know how to find it, said Matt Rosoff, analyst with Directions on Microsoft.

"It's a branding issue," he said.

That's something Microsoft has been struggling to address for years. Microsoft Platforms and Services Division President Kevin Johnson put "Fix our online branding" on the same list as "Win targeted distribution" in a strategy memo to employees last month.

"Our brands are fragmented and confusing today, and we recognize a need to clarify and align our online branding," Johnson wrote.

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Microsoft hopes to gain both broader awareness and distribution of its search service through the deal to make its offering more attractive to advertisers.

"A lot of our advertisers have told us that they get very good results from our [search] ads, but they don't get the volume they need to drive the sort of performance they need in their businesses," Norton said.

The deal with HP, which is for only one year to start, has Microsoft building a custom search toolbar using Silverlight, its online multimedia platform. The toolbar will include tabs and buttons that point to HP products and services.

"If they create a very attractive environment for HP users, it will keep them within that environment instead of having them change the default [search engine]," said IDC analyst Sue Feldman.

High-profile deals with PC makers — called original equipment manufacturers, or OEMs — often raise the specter of past Microsoft business practices that landed it in court for abusing its monopoly in desktop operating systems.

This arrangement appears to steer well clear of any such antitrust considerations. It has no desktop search component, Norton said. Financial terms were not disclosed.

"This is Microsoft signing a deal with an OEM like any other company would," Rosoff said.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

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