"My sources say that Microsoft has offered Dell sweet enough terms to entice the PC maker to replace its search-preload deal with Google with a comparable offering from Microsoft," Foley reports.

Meanwhile, Qi Lu, Microsoft's new Online Services Group president, told The Wall Street Journal that Microsoft's ability to invest in Internet search was a key enticement. "In my interaction with Steve [Ballmer] the one thing that impressed and won me over is the level of commitment they are investing," said Lu, who left Yahoo, where he was executive vice president in charge of search and advertising, in August.

Lu cited Microsoft's investments in distribution deals specifically:

"They're investing resources, they're investing in our ability to distribute a product, investing in things that we can do to ensure we have at the highest quality of user experience, and that's very, very important," Lu said.

Microsoft has inked several significant distribution deals for Live Search with PC makers, in a bid to grow its market share.

In October, Google had 63.1 percent of the U.S. search market. Yahoo had 20.5 percent and Microsoft had 8.5 percent, according to comScore.

In March 2007, Microsoft cut a global deal with Lenovo to preinstall Live services, including search, on new PCs.

In June, Microsoft landed a North American distribution deal with Hewlett-Packard, set to begin in 2009.