Microsoft, Sun Snuggle Up With Search Deal

Four years after Microsoft (Nasdaq: MSFT) paid US$1.6 billion to Sun Microsystems (Nasdaq: JAVA) to settle an antitrust and patent suit, the once-bitter rivals are teaming up on Internet search.

Under an agreement announced Monday, Sun will offer Microsoft's MSN Search toolbar when users download Java Runtime Environment, or JRE.

Though terms of the pact were not disclosed, it appears that a similar deal Sun had with search engine powerhouse Google (Nasdaq: GOOG) has ended.

Still Chasing Google

The agreement between Microsoft and Sun is straightforward: Users who download Sun's JRE software on Internet Explorer will be given the option to install the MSN Toolbar, allowing them to conduct searches using Windows Live Search without visiting the MSN home page.

Microsoft appears to be trying to take advantage of evolving user behavior when it comes to conducting Internet searches, suggested Sid Parakh, an equity analyst with McAdams Wright Ragen.

"Many people have started using the search toolbar in the browser instead of going to the actual search home page," he told the E-Commerce Times. "Typically, users don't change the default search provider [in their Web browser], so Microsoft should automatically see an increase in the number of searches on Windows Live Search going forward."

The deal with Sun is an attempt by Microsoft to catch Google in the search advertising market, Parakh said.

Microsoft has a long way to go. Google's share of the search advertising market is a dominating 60 to 70 percent, with Yahoo (Nasdaq: YHOO) at 20 percent. Microsoft is a distant third with between 8 percent and 10 percent.

If the software giant can show advertisers that the number of users conducting Internet searches on Windows Live Search is growing, then more advertisers may decide to buy ads on the search engine.

"Typically, advertisers do follow search market share," Parakh said. "This deal is a win for Microsoft, but it's not groundbreaking. This is more of the kind of stuff they need to be doing to boost their share of the market on the search side."

New Best Friends Forever?

Although it appears that Microsoft and Sun have buried the hatchet, "this is probably more driven by financial incentives of what Google is offering versus what Microsoft is offering," Parakh said.

"I wouldn't read into it too much about what has happened in the past and what might happen in the future," he concluded.