Google Getting Gunshy on Traffic Referral Deals?

Incredimail reported its 4th quarter earnings today and the stock got killed thanks largely to the revelation that Google had recently approached it and indicated that they were considering significant changes to their policies on how their "traffic partners" are allowed to reset their users homepage and default search provider settings.  You may recall Incredimail from my recent post on companies that highly dependent on Google for their economic livelihood. As that post pointed out, Incredimail gets the vast majority of their revenues from one of Google's "traffic partner" programs so any change to that program is potentially a very big deal.

What exact "traffic partner" program is at issue? Anyone who has downloaded a piece of free or shareware software in the few years is familiar with this racket.  You download seemingly free software and the software tries to change your default search provider and default home page, usually to Google, but sometimes to Bing or even Ask. Some installers are very explicit about this change and require you to approve the change at least once during the install, while others make the change part of the default install and clearly try to make the change fly by unnoticed by the user Once these defaults are changed, the "traffic partner" that installed the software gets a Google's revenues for every search that flows to Google.

These kinds of "traffic partner" search deals have become very important for many software providers, especially "free" and "shareware" software providers.  Their importance has led to an epidemic of "upgrades" to free software that require full re-installs, not because the re-installs are needed technically, but because the re-installs provide another opportunity for the traffic partner to switch people's default search provider and default home page.

Google is likely considering making changes for one of two reasons:

1. They believe that this kind of default switching could expose them to regulatory and legal action from the US and EU.  For example, Microsoft was recently forced by the EU to offer a "browser choice" screen for new Windows installs, effectively preventing Microsoft from making IE the default install.  I wouldn't be surprised if Microsoft is complaining that they are being unfairly singled out because Google does the same thing in search.  Or perhaps Google is hearing that if they don't clean up their partners' act the regulators may step in and clean it up for them.
2. Since Google's search share is already over 70%, they may have done the math and figured it really doesn't make sense to pay for traffic, because most of the searches are bound to flow their way anyway.

Perhaps it's a little bit of both, but either way, for anyone who depends on these kind of traffic programs this is potentially a very big deal, especially if what's motivating Google is reason #1, because that means Bing and Ask will be out of the market in due time as well.  I'm not sure how this will turn out, maybe Google will just force firms to have a more explicit "opt-in" process (which will no doubt significantly reduce uptake rates), but it's worth keeping a close eye on because the stakes for a lot companies are huge.