Technology

Microsoft's Search Slugfest


New features did little to make headway on Google and Yahoo; now the No. 3 engine plans to beef up marketing and tap its existing user base

When it comes to Web search, no one wants to be No. 2. So it's got to hurt that Microsoft, the world's heavyweight software maker, steadily comes in a distant third. Google seemingly has a lock on the top spot and, thanks to a new ad-ranking method, Yahoo! has a credible shot at narrowing the gap.

Microsoft? Not so much. And executives at corporate headquarters aren't pleased.

On a Jan. 25 conference call discussing quarterly results, Microsoft (MSFT) Chief Financial Officer Christopher Liddell expressed dissatisfaction with the company's search engine growth. "We lost market share," said Liddell, referring to Nielsen//NetRatings and comScore reports. "We are clearly not happy with that."

Concerns over leadership of the division resurfaced in early March with the reported departure of Christopher Payne, the corporate vice-president in charge of Windows Live Search. The company is mum regarding the reasons for Payne's exit, but his replacement faces a tall order.

Search Optimization

Traffic to Microsoft's Live search engine, launched in September and formerly known as MSN Search, grew 2.5% over the past year, according to a Feb. 28 Nielsen//NetRatings (NTRT) report. It had 643 million searches in January alone. However, that growth pales in comparison to Google's 40.6% growth and Yahoo's nearly 29% traffic increase over the same period.

Less than 9% of searches are performed on Microsoft. Meanwhile, Google's (GOOG) share has swelled to more than 53% and Yahoo (YHOO) has nearly 23% of the market. "When you have players like Google, and Yahoo to a lesser extent, that are in first place and aggressively innovating, it is a very difficult thing to stop that kind of momentum," says Charles Buchwalter, Nielsen//NetRatings' senior vice-president of industry solutions.

Microsoft has done what it could to rev up its own momentum. The company spent much of last year working to differentiate Microsoft's search offering through features such as 3D maps and continuously scrolling image search, says Justin Osmer, senior product manager at Live Search.

This year, however, Osmer says the company plans to get out the "megaphone." "We have taken the time to get the engine up and get it running," says Osmer. "So this will be a year about getting the word out and getting people more engaged with the service."

Integrate Innovation

Osmer wouldn't say how much money Microsoft would be putting behind its marketing efforts. However, effectively spreading the word alone is unlikely to solve the problem, analysts say. After all, Google didn't get to be No. 1 by advertising. "Innovation is the key that will carry much more weight than a big megaphone," says Buchwalter.

Microsoft's attention problems are less about marketing than providing services that offer more than incremental improvements, if anything at all, over existing products. "Microsoft needs to give people something compelling to do," says Walter Pritchard, a senior analyst at Cowen & Co. "All of their products are very me-too type products."

Unfortunately, Microsoft doesn't have a reputation for such innovation. Its Live Search offering, launched after the company hired away Steve Berkowitz, former chief executive officer of search engine Ask.com, seemed to mimic Google or Ask with its single search box (see BusinessWeek.com, 9/13/06, "Can Microsoft Out-Google Google?").

User-Friendly

What Microsoft does have is money and a massive number of people who use its other products, operating system, and online services. It can harness both of these things to improve its search offering. Cowen's Pritchard suggests that Microsoft use its considerable funds to acquire interesting startups that, with any luck, become the next highly trafficked Web darling, à la video-sharing site YouTube or social network MySpace. Such a site would get more people buzzing about Microsoft and potentially using its search tool, Pritchard says. "They should be buying a company a month," he says.

Microsoft already sees the potential in its existing user base. Whitney Burk, Microsoft's public relations manager for competitive strategy, notes that Microsoft has 465 million unique users a month who could potentially be convinced to perform a search or two while on Microsoft's sites. The company is integrating search into its Windows instant messenger and on its online sites in order to encourage them to do so. "If we got all of these people to do one search a day, that would be a big bump for us," says Burk.

Another big bump could come from doing more to sell ads across its various services. An advertiser could, say, bid on search keywords, placement on MSN sites, video ads on MSN search properties, as well as advertising on Microsoft IPTV television stations and in-game advertising on Xbox games—all on the same platform. "Right now the discussion around advertising online is all about search-based ads," says Burk. "But I think ultimately the digital advertising opportunity is much bigger than that. We are investing deeply in the prospect of having that one-stop shop."

Still, Microsoft will never say it is content with being No. 3. "We want to eventually be in second place and even first place," says Osmer. "We are going to slug it out."

Holahan is a writer for BusinessWeek.com in New York.

Steve Ballmer, Power Forward
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