Google's Adobe Distribution Deal: Encroaching on Microsoft's Business Model

Caris & Company analyst Tim Boyd released a note on Google's (GOOG) recently inked deal with Adobe (ADBE) -- key excerpts:

· Google announced a multiyear agreement with Adobe yesterday under which the Google toolbar will be included in downloads of the Macromedia Shockwave player.

· Formerly, Yahoo!’s toolbar had been included in the download. This example of a traditional Microsoft ally joining forces with Google is underscored by Adobe’s recent disagreements with Microsoft over .doc/.pdf standards.

· We view the deal as a boon to Google as it continues to encroach upon Microsoft’s business model, although it also highlights the urgency with which Google is attempting to make its search tools ubiquitous prior to the release of Windows Vista in early 2007.

· We think it likely that Google will announce several more distribution deals of this kind throughout the remainder of 2006 as it attempts to minimize Microsoft’s advantage.

· Earlier this week, comScore released its qSearch data for the month of May – it shows Google increasing its share of U.S. query volume to 44% from 43% in April. Meanwhile, Yahoo!’s and MSN’s share held steady at 28% and 13%, respectively.

· This data, along with the recent IAB report showing accelerating growth in U.S. Internet advertising during 1Q06, increases our confidence in our above-consensus estimates for Google’s June quarter.