Word has it that the No. 1 PC maker Dell (NASDAQ:DELL) is testing the idea of bundling search giant Google's (NASDAQ:GOOG) software on its PCs. Is this a blow against Microsoft (NASDAQ:MSFT)?

According to news reports, Dell is testing a bundle of Google software, including Google Toolbar, one of the many applications with which Google hopes to stake a claim on users' desktops. Pre-bundling its products with brand-new computers -- a page from Microsoft's playbook -- would certainly help Google's efforts. Of course, when the PC revolution was young, newbie users understandably used most of the software bundled with their computers. These days, PC-savvy computer users are more likely to adjust and add their own custom programs instead, which may cast doubt on the effectiveness of a potential Google gambit.

What's in this possible deal for Motley Fool Stock Advisor selection Dell? According to news reports, Google might pay Dell $1 billion for the real estate it gets on the PCs during a three-year agreement.

According to news reports, Google outbid Microsoft and another search contender, Yahoo! (NASDAQ:YHOO), for this kind of presence on as many as 100 million new Dell computers. After recent news of Google's agreement with Time Warner's (NYSE:TWX) AOL, Google investors may be concerned about Google's willingness to drop a billion here and a billion there.

Google's nothing if not aggressive, considering all the different products it has released over the last year or so. However, its recent earnings "miss" suggests that the company can no longer rest on its laurels.

This deal wouldn't be a huge problem for Microsoft, it seems, until Google develops its own operating system, or unveils more Web-based applications to compete with Microsoft's Windows and Office products. (Sure enough, rumors are that Google might do exactly that). On the other hand, Microsoft needs all the help it can get in improving its own search fortunes, and further solidification of Google's search dominance could endanger Microsoft's chances.

It's been a while since we've seen such a showdown between giants take place on PC makers' desktops. Investors should keep a close eye on how this latest battle shakes out.

Dell and Time Warner are Motley Fool Stock Advisor selections. Microsoft is a Motley Fool Inside Value recommendation.

Alyce Lomax does not own shares of any of the companies mentioned.