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Google sees partnerships not mergers

Google Inc believes that big-name partnerships instead of major merger deals remain the best way to expand its customer base.

india Updated: Jun 01, 2006 16:29 IST

Google Inc believes that big-name partnerships instead of major merger deals remain the best way to expand its customer base, executives of the Web search leader said on Wednesday.

"M&A (mergers and acquisitions) as a method to acquire traffic has not historically worked," Chief Executive Eric Schmidt told Wall Street analysts on a conference call, but adding: "Again, we would never rule something like that out."

"It (M&A) is a bad business strategy ... and it is not consistent with Google's values and culture anyway," Schmidt said. Google prefers to build markets itself rather than buy its way into them, he said.

His comments follow speculation on Wall Street that the Internet industry is poised for consolidation among its bigger players because of slowing growth and the inroads Google has made in transforming the Web advertising business.

Google had $8.43 billion in cash in March, which could be used to fund M&A. So far, however, it has opted to spend only part of its mounting cash pile on computers and datacenters to support new Web services.

The call with analysts is part of a new push by Google to improve relations with Wall Street, which has been irritated by its steadfast refusal to comment on its financial outlook, unlike many high-growth companies.

Partnerships, not mergers

Partnerships with AOL LLC on advertising, Japanese mobile phone company KDDI Corp in mobile phones and Dell Inc on computers remain the preferred method for expansion beyond its own efforts, Schmidt said.

"The answer is partnerships," he declared.

Google declined to comment on the pricing structure of a partnership announced last week with Dell, which analysts have speculated involves big upfront payments to win prominent placement for Google's Web search and other services on Dell PCs.

"It's better if we don't comment on any of the rumors about pricing," Schmidt said, repeatedly saying the deal was covered by a confidentiality agreement.

The deal could mark a milestone for Google, which historically has incurred little upfront cost to attract customers to its services. Instead, it has shared a portion of advertising revenue with partners who drive traffic its way.

Schmidt also dismissed recurring speculation that Google wants to build its own Web browser software to compete with rival Microsoft Corp, saying plenty of solid alternatives to Microsoft's Internet Explorer exists.

"We would not build a browser for the fun of building a browser," he said.

Google promotes the open source Firefox browser in many of its products. It also encourages the use of browsers from Apple Computer Inc. and Norway's Opera Software ASA, which makes browsers for computers and phones, and other alternatives.

Still, Schmidt left the door open to develop a browser if Google sees some clear utility to users that is not otherwise being met in the market. "We would only do something ... if we thought there was a real end-user benefit," he said.

Schmidt argues the computer industry landscape has been changed by the dynamics of Web search advertising and the decade-old "battle for the desktop" waged by Microsoft and its competitors is quickly becoming less relevant.