Revenge of the middlemen

Big profits bring big competition. Yesterday, Google’s stock fell sharply as reports leaked out that the company was considering paying Dell as much as a billion dollars to have its software preinstalled on Dell PCs. In explaining the stock drop, Reuters reported that “analysts cited concerns that the Web search company was prepared to dramatically increase the cost of acquiring new customers by agreeing to pay huge upfront fees to win deals with PC makers.”

This is another sign, along with the introduction of the Google Pack, that one of the great battlegrounds for search engines, and other internet software providers, is control over the default settings on PC desktops and other devices. Software may increasingly be supplied as services over the internet, but as long as accessing those services requires some kind of device, the device makers will have considerable power to extract rents from companies like Google, Yahoo and Microsoft. The laziness of users – their reliance on the default – means that it’s much easier to secure control of the user’s online habits by controlling the initial default settings than by trying to change those settings later.

The search giants, in other words, don’t only compete for profits with one another, but with device makers, network operators, advertisers, content sites, and users themselves. In the future, the currently vast profit pool in on-line advertising will likely be split up among those players, and others, in very different ways than it has been up to now.

UPDATE: An article in today’s Wall Street Journal shows just how intense the “default” battle is becoming.

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