Internet search meets the gadget

Google, Yahoo execs to speak at CES, underscoring tie of consumer electronics, Net markets.

Culture
In a first for the annual Consumer Electronics Show, Google co-founder Larry Page and Yahoo CEO Terry Semel will deliver separate keynote speeches in Las Vegas this week.

At first blush it may seem odd that two giants of the Internet are presenting dueling keynotes at a conference historically devoted to gadgets and home electronics. But the speeches by Page and Semel make a lot of sense, because their long-running search engine brawl is headed to a consumer device near you.

There's little doubt at this point that Google and Yahoo are the top dogs in the search market, and as consumers increasingly access the Internet through devices other than the PC, it makes sense that the two companies should follow their customers onto those devices. The question, of course, is just how they plan to do it. They're already working on search technologies for video, television and music. It wouldn't be a stretch to drop that technology into some sort of device.

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What's new:
Google co-founder Larry Page and Yahoo CEO Terry Semel will address the crowd at CES, sparking speculation that the search companies may be getting into the hardware business.

Bottom line:
Many analysts say it's highly unlikely that two companies that have found high-growth and big profits in Internet search will stray into the low-margin hardware business.

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That natural combination has helped that Google is set to unveil some sort of gadget that smoothly connects to Google's Internet services. But many analysts say it's highly unlikely that two companies that have found high growth and big profits in Internet search will stray into the low-margin hardware business.

What's more likely is that the Google and Yahoo execs will present arguments--and services--to convince consumers that search technology will be the key to delivering and accessing digital media on any device, whether it's the PC, TV, set-top box, personal digital assistant or cell phone. Analysts expect them to say why their respective technologies are best for the job. And while details are still scant, don't be surprised by a few partnership announcements as well.

"They see a role for search in all sorts of consumer appliances and they want to help deliver it," said Danny Sullivan, an industry analyst and editor of SearchEngineWatch.com. He remarked that, given the cost, it would be a "strange direction" for Google to introduce hardware despite rumors on the subject.

They'd be wise to stay out of the hardware business, because few software or Internet companies, other than Microsoft with its Xbox videogame console, have been able to make the leap.

Even Microsoft has had a spotty record. In 1997, Microsoft invested more than $400 million in upstart WebTV, which sold a low-cost box for access to the Web from the TV. It reinvented the device as MSN TV, but has yet to sell it widely. AOL has also sold PCs under its own brand several times, with limited success.

There's a reason previous efforts like WebTV didn't pay off. The economics of developing proprietary hardware didn't measure up for companies accustomed to high-margin businesses like software and Internet services. The costs to engineer a device were too high and development time was too lengthy. Don't forget: There already were plenty of PCs, which get cheaper all the time, connecting consumers to the Net.

What could make things different this time around, however, are the wide home use of broadband and a creeping sense among tech companies that they need to control the bridge between the digital home and the Internet. Whoever controls that bridge, so the theory goes, mines tech's next big pot of gold.

Internet gearmaker Cisco Systems, notably, spent $6.9 billion in November to buy Scientific-Atlanta, which makes home cable boxes. The combination of Cisco's networking gear and cable boxes could prove powerful. Yahoo, for its part, has already teamed with digital video recorder maker TiVo to allow people to search for and program their show recordings from the Web.

Make no doubt, the high-tech and consumer electronics industries are converging, and Semel and Page's presence at CES underscores that point.

Google cubed? Certainly, Google is interested in alternative technologies, especially within the wireless market. Last year, it bought upstart Android, a company developing operating system software for wireless devices and whose founder was behind the Sidekick wireless device. Yet Google would be interested only in bringing a device to market if it could cut the current cost models, industry analysts say.

Rumors about a Google appliance have been circulating for months, if not longer. A top executive of thin-client maker Wyse Technology, told The New York Times that Google has been in talks with his company. "The discussions are focused on a $200 Google-branded machine that would likely be marketed in cooperation with telecommunications companies in markets like China and India, where home PCs are less common," said John Kish, chief executive of Wyse, the Dec. 11 article said.

"We are in very early-stage discussions to explore a potential relationship," Wyse Technology spokeswoman Laurie Garvey said in an interview with CNET News.com. She said it is too early in the process to provide any further details.

A Google representative said she had no information about any Wyse discussions but that she would look into it.

Speculation spiked with a column by Robert X. Cringely in November in which he forecasted that Google will create distributed data centers in shipping containers that would be used to link up "."

The Google Cubes, he describes, are plug-and-play devices that would serve as the company's "interface to every computer, TV and stereo system in your home, as well as linking to home automation and climate control...(and) are networked together wirelessly in a mesh network, so only one need be attached to your broadband modem or router."

He cites no source for his prediction, and said in a telephone interview with CNET News.com that he doesn't expect Google to announce its mystery boxes at CES. If they do something within the next year, he speculates that the search giant will partner with a manufacturer that would build the device. Build Google factories? Not a chance, he said.

"At some point they're going to buy these things from someone," Cringely said. "They wouldn't risk their (profits) on something like that."

Bear Stearns analyst Robert Peck referred to Cringely's prediction in a research note dated Dec. 19. "Through recent conversations with a technology pundit, we think Google could be experimenting with new hardware endeavors that could significantly change potential future applications by Google, creating another advantage for Google over its competitors," the note said.

The Los Angeles Times cited the Bear Stearns report in an article Sunday providing its own predictions for 2006.

"Google will unveil its own low-price personal computer or other device that connects to the Internet," the article said. Citing unnamed sources, it also said Google and Wal-Mart Stores were in talks to deliver the inexpensive hardware, infused with a Google operating system and applications.

Both Google and Wal-Mart representatives denied the rumors. "There's no truth to it whatsoever," a Wal-Mart spokeswoman said. Google issued this statement: "We have many PC partners who serve their markets exceedingly well and we see no need to enter that market; we would rather partner with great companies."

Google already offers a search appliance tailored for business use. The Google Mini combines hardware and software to index documents on a company's internal or external Web sites.

Such news inevitably gooses Google's stock price.

On Tuesday, Piper Jaffray analyst Safa Rashtchy raised his price target for Google to $600 a share for the next year, reflecting a 50 times price-to-earnings forward multiple. Google was trading at $435.23 per share at the end of trading Tuesday. Rashtchy predicted the company will grow faster than the paid search market, which is already expected to grow 40 percent this year.

But bullish as Rashtchy is about Google's stock, he's skeptical it will build some sort of consumer device. "The history of appliances, net appliances or otherwise, has been checkered at best," Rashtchy said. "If Google does really have a product, it really better simplify the challenge" of converging Internet with television and home entertainment.

CNET News.com's Michael Kanellos contributed to this report.

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