There's lots of buzz now about IE7 and the "search box" at the top of the window. Microsoft says if you download IE7 that box will use the search engine you used in IE6, which is normally MSN search. For anti-trust reasons they are not rushing to just force it to be MSN or live from the start.

Recent comments to me have made me think about just how valuable that box is, and whether in fact it's as valuable as all of Windows Vista Home, for example. Rumours have circulated that Mozilla foundation got something close to 70 million dollars by making Google the default search in the Firefox search box. For about a 10% share of the browser market.

Microsoft may have views on what default to set, but the real parties that will set the default for a lot of users are the OEMs (like Dell and HP) that ship with Windows Vista, and the big ISPs (Cable, DSL) who love to push a customized browser on their users. Both these groups have done basic customizations like setting the home page and throwing in some bookmarks. But nothing has every been so valuable as the search box.

It was suggested to me that the OEMs might open the default on the search box to bidding. Google, Yahoo, Microsoft and the rest would bid on who could offer the vendor a better deal -- either as a percentage of revenues or a flat fee. Indeed, the type of customer (rich, poor, corporate, personal) might dictate the deal.

At some point, if it hasn't already happened, the value of the search box could exceed the OEM's cost for Windows Vista Home (street buzz suggests this is around $40 for high volume OEMs.) In other words, at some point, Microsoft would be effectively offering Windows Vista Home to the OEM for free, or even paying the OEM to take Windows if Microsoft search is the default search box. (Or even locked in. While MS dare not lock it in for anti-trust reasons, an OEM could do this.)

All of this depends on the dynamic of the negotiation between Microsoft and the PC vendors. Since I doubt MS wants to be in the position of paying vendors to take Windows -- effectively putting them in the search business where they are #3 instead of the OS business -- they will use whatever tools they have to fight this.

It doesn't matter a lot that many users would switch from the default, or download a new browser (even IE7 directly from MS) if they don't like the choice. The value of the default is powerful enough, unless it truly sucks.

This line of thinking goes further. Our PCs are becoming a conduit for much of our commercial activity. Google makes about $2B/quarter from ads, without forcing much on you at all, which has been part of their genius. In the past, people like NetZero failed to even pay for dial-up ISP service from ads. But there's still much more to exploit. As Moore's law drives down the price of the computer, and the effectiveness of Google and other companies at monetizing the web experience moves up, at some point the lines cross and it becomes worthwhile to subsidize, and then give away the entire PC, at least to certan prospects. Decent Linux PCs with no monitor are $160 at Fry's. Are we that far away from this happening?