Novice Investing - Google Is Getting A Dell

Date: Tuesday 07th 2008f October 2008 02:01:30 AM

Google Is Getting A Dell - 05/26/2006

By: Hari Wibowo

After an earlier deal between Yahoo! Inc. (YHOO) and eBay to provide advertising venue, Google Inc. (GOOG) announces its alliance with the struggling Dell Inc. (DELL). The deal includes inserting Google's Toolbar and Desktop on Dell computers purchased by consumers, small and midsized business. Furthermore, while still using Internet Explorer as its browser of choice, A Dell Computer will have a default homepage co-branded by Google and Dell.

This kind of deal had been expected late last year. However, at the time, Google was prepared to pay Dell over $ 1 Billion for the next three years. Now, the deal calls for Google paying $ 2 per computer for the next 100 million PC shipped by Dell Inc. For the first quarter of 2006, Dell shipped 4.9 Million PCs in the US. The new deal will last roughly three years with Google paying $ 800 Million less, a smart move on its part.

For Dell, meanwhile, every bit of extra money matters, right now. With HP and overseas low-cost competitor on the rise, Dell needs to realign its direct-model strategy. This week, it announced that it will be opening 3000 feet brick-and-mortar stores at select location in the United States. As for Google, the deal gives it an equal footing of competing its desktop application with Microsoft Inc., which always had its browser and msn service available to all window computers. At this point, winning the desktop software looks like an impossible feat for Google, which does not have any market share in the field. Operating system is a cash-rich business for Microsoft, contributing nearly 90% of its operating profit. Slowly but surely, Google is trying to get into Microsoft's Den. As they say, to get a baby tiger, you need to go inside the tiger den.

Google always has this tradition of surprising its competitors. My guess is that, we will see some version of desktop operating system (albeit very crude) very soon. Less than twelve months from now is a reasonable guess. If they want to be bold, they would release this desktop software prior to the release of Microsoft Vista.. Instead of distributing it over the PC, Google might give out its free-version software through the internet. Again, this is just speculation.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Google Inc. (GOOG) or any other securities.

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