Verizon-Microsoft Deal: Boon For LBS?

UPDATE Last night at the Consumer Electronics Show, Microsoft CEO Steve Ballmer announced a five-year deal with Verizon Wireless that makes Microsoft the default search provider on all of Verizon’s cell phones.

The obvious benefit is to Microsoft, whose Live search engine remains an also-ran compared to Google and Yahoo, at least for PC searchers. For Verizon, there hasn’t been much chatter beyond the widely-reported $550 million to $650 million that Redmond will pay the service provider out of search ad revenue. But I instantly thought about Verizon’s–and other U.S. carriers’–dreams about location-based services. As you may recall, at Under The Radar: Mobility representatives from cellular providers all tried to put a positive spin on LBS, saying they’ve invested much time and money in the technology.

So I wondered if this commitment between carrier and search provider means they’ll both work hard to make LBS a reality for consumers and marketers alike. Maybe the partners can cooperate on this service, which skeptics say is still a long way from becoming mainstream.

“In the upcoming months, LBS is increasingly going to become an enhancement service, and we will see it integrated not just with integral services like search, but also with entertainment services like social networking,” said Current Analysis analyst Deepa Karthikeyan.

She explained: “Microsoft’s Live Search service will provide contextual search results–that is, results that are relevant to the user’s location, like local show times when searched for a movie title. The Microsoft-Verizon deal will no doubt encourage… the pace of mobile advertising on Verizon’s deck as marketers will be attracted to the notion of appealing to users at the right place and time, something that no other medium currently offers.”

But it won’t happen terribly soon. “I don’t get the sense that all these details have been worked out,” Forrester analyst Neil Strother said. “It takes a lot of heavy lifting to… get that local proprietor, or even a chain, to buy in.”

He continued: “It’s hard to couple location and relevance and search…Location is such a different animal from search. If I can get really good answers that are fundamentally purchase-based, that’s very different criteria from asking a broader question like ‘who won the 1997 Superbowl’.”

I agree that all the components for successful LBS (and LBS-based marketing) still aren’t in place. But the partnership between Verizon–which becomes the top U.S. cellular provider when its acquisition of Alltel is complete–and Microsoft was a long time coming. Yahoo has been AT&T’s default search provider and Google, T-Mobile’s. Now that all the major carriers have specific search partners, they can work together on leveraging search with LBS technology.

With their exclusive search partnerships, and with exclusive sales of specific smartphones (AT&T+iPhone, T-Mobile + G1, and Verizon + BlackBerry Storm, among others), the carriers are more or less now on an even playing field. (Ms. Karthikeyan notes that Google has 64.5 percent of the PC search market and Microsoft Live, just 8.3 percent.) I think they’ll want to race to be the first to make LBS a reality.