In Search, Microsoft May Race To The Bottom

Business Week

The world is finally waking up to the full implications of Google's business, and they're not all pretty.

Leading the rebellion is News Corp. (NWS) CEO Rupert Murdoch, who is threatening to keep his newspaper content beyond the reach of Google (GOOG) searches. Murdoch wants to keep Google from reaping so many of the financial benefits of advertising placed adjacent to News Corp. content. He's being aided and abetted by Microsoft (MSFT).

In a scenario under consideration, Microsoft would pay News Corp. for making articles from The Wall Street Journal and other Murdoch-owned publications searchable exclusively through Microsoft's Bing search engine. If the effort encourages other powerful content providers to demand compensation from Internet companies that generate revenue from online ads, the Murdoch-Microsoft partnership could create a big problem for Google.

Search is not Microsoft's core business, but it generates a lot of tech industry revenue—and funds Google, Microsoft's No. 1 competitor. So the best play for Microsoft in the Web search market could be to diminish the revenue stream for everyone involved. If Microsoft could reduce the overall market value of Web searches, it could protect its own software revenue while hurting Google.
Changing the Economics of Search

Blogger and entrepreneur Jason Calacanis recently suggested a strategy whereby Microsoft could gain search market share by paying content providers more than they're getting from search referrals.

Google's threat to Microsoft and other software and telecom companies is manifold. Google is competing not only in search engine software, but also in mobile phone services, personal navigation, and operating systems.

In concept, it wouldn't be especially difficult for Microsoft to change the economics of the Web search market, as long as the company can tolerate losses. Microsoft could take advertising revenue generated by Bing and pass it along to media providers, in return for exclusive arrangements to make their content available on Bing. Microsoft would modify the money flow.
Alternative Model: GDS

The search-engine economy doesn't need to work the way it does; there are alternative models. Consider the travel industry's global distribution systems, used by airlines, car rental agencies, and hotels to make their inventory available to travel agents. The systems amount to search engines for the travel industry.

As time went on, the global distribution systems (GDS) had to pass more money from airlines to travel agents in order to motivate them to use the systems. So an airline might pass $8 per booking to its GDS, which then must pass $5 on to Expedia.com (EXPA). Like Google, the GDS centralize great power over finding information. But unlike Google, companies that invest in the travel systems don't keep all the profits for themselves.

Similarly in the Web search market, Microsoft could redirect the flow of funds. The company doesn't need the money from search. In its most recent quarter, Microsoft generated more than $7 billion in sales from its main businesses, Windows and Office. By reducing the value of Web searches for media content, Microsoft could strike a blow at Google, which is challenging its main applications and operating system businesses. In other words, Microsoft could make Internet search more like the GDS model and sap the profitability from it.

Microsoft is likely well aware of the potential. In 2008 it tried to follow exactly the GDS model by "incenting" consumers to use Bing through a program that provided consumers with cash back on purchases made via its search engine. The program wasn't successful, but it reflected Microsoft's willingness to try to shake up the Web-search economy.
Will Others Emulate Murdoch?

Today, Microsoft is focused on working with companies that care dearly about revenues—media companies such as News Corp. Search-related ad revenue is the bonanza on the Internet, and News Corp. doesn't make enough from display ads to pass up Microsoft's deal. News Corp. could strike an arrangement that lets it lock in a disproportionate share of search ad revenue from Bing-driven hits on News Corp. sites. That kind of deal would work to Microsoft's advantage, too.

Microsoft could sweeten the deal for News Corp. by sharing a cut of broader Bing search ad revenue. Microsoft could in effect say, "Rupert, old pal, we really like you. Here's a big chunk of our search revenues, as long as you're willing to work with only us."

Other publishers have reasons to follow News Corp.'s lead. If payments from Microsoft exceed the value of ads generated by Google-related traffic, it would make sense for other publications to delist from Google, too.

As more content becomes available exclusively on Bing, users could switch away from Google search. That in turn will move market share. Google may even begin to pay incentives, putting pressure on its margins. Microsoft could be willing to race all the way to the bottom.

Google, Bing Kick Yahoo To The Curb

CNN Money

Once the world's online search leader, Yahoo's share has sharply declined, putting it in danger of losing its relevance in a market increasingly dominated by Google.

Yahoo's search market share in November fell to 17.5% from 18% in October, according to a monthly comScore report released late Wednesday. It's the lowest share ever recorded for Yahoo.

Cannibalizing Yahoo's market share is Microsoft (MSFT, Fortune 500), whose new Bing search site gained 0.4 points of the search market to 10.3% in November. That was the first time Microsoft owned more than 10% of the market since September 2007.



Despite that good news, it's really a mixed blessing of sorts for Microsoft, which entered into a search deal with Yahoo that is expected to start in the next several months. When the deal was announced in July, analysts largely praised the marriage, since the companies held a combined 28% of the market -- close to the 30% that experts say is needed to convince advertisers that a company is a relevant competitor in a marketplace.

Since the July announcement, "Microhoo" has gone in the wrong direction. The companies' combined share has taken a 0.4-point hit, as Yahoo's share has fallen by 1.8 points, outpacing Bing's 1.4-point gain.

"They're still going to be a viable No. 2 behind Google, but less so than they expected," said Daniel Ruby, research director at search-advertising firm Chitika, Inc. "Everyone is surprised by the fact that Yahoo has lost such a significant amount of traffic. Thirty percent seems like a very long shot."

Google grew its share by 0.9 points since July to take 65.6% of the search market in November. That's the largest share Google has ever garnered.

Meanwhile, Yahoo has lost share for 10-straight months. As the closing date nears for the search rivals' deal, some say Yahoo is reaching a tipping point that could make or break the value of its partnership.


The devil is in the details

Under the 10-year agreement, Microsoft will power the searches that users make on Yahoo.com. In return, Microsoft will pay Yahoo 88% of the revenue it gains from searches on Yahoo's sites. Yahoo.com and Bing.com will maintain their own branding but search results on Yahoo.com will say "powered by Bing."

"There is no getting around the fact that the market share trend for Yahoo is absolutely awful," said Benjamin Schachter, analyst for Broadpoint AmTech. "The Microsoft deal does not guarantee any search revenue, only revenue-per-search levels; therefore, search share and volume are as critical as ever."

Still, another school of thought says not all is lost for Yahoo.

Both Yahoo and Microsoft have poured millions of dollars into advertising campaigns to get users to come to their Web sites. Yahoo's new "It's Y!ou" campaign has been plastered all over billboards and television spots. Microsoft just launched its new highly publicized Bing iPhone App on Tuesday.

As a result, some advertisers believe users who search on those sites are more likely to indulge a sales pitch and therefore are more likely to click on their ads than Google's users.

"Microsoft and Yahoo offer quality versus quantity," said Ruby. "The traffic they drive is more valuable than Google's in some advertisers' eyes, because their users are going to be delivering higher margins."

So even as Google SEO continues to gain share at "Microhoo's" expense, Yahoo and Microsoft live on to fight for high-quality searchers as a way to stay relevant.

Search Market Exploding With Innovation

Mercury News

It's a global battle whose foot soldiers will be engineering teams working inside a few square miles of Sunnyvale and Mountain View, with billions of dollars in advertising at stake.

Almost a decade after Google became a household name, Microsoft's launch of its Bing search engine, followed by Microsoft and Yahoo's deal to collaborate on search, could give the world's dominant Internet search engine its first serious challenge in years, as search becomes a key front in the looming competition between Google and Microsoft.

But regardless of who wins this competition, the beneficiaries are everyone who uses search engines, as quickening innovation improves the quality of information and delivers it in more useful packets. This year for the first time, a majority of the roughly 180 million U.S. adult Internet users typed a query into a search engine on a typical day, and search is gaining on e-mail as the most common online task.

Thanks to new technology, users will get their answers faster, from more than just text, and if the companies are successful, may find search engines are better at understanding what they are looking for.

"Search is going to change more in the next year than it has in the past five years," said Ben Schachter, an analyst with Broadpoint AmTech, who believes the pace of search innovation is the greatest in at least a decade.

Deluge of innovation

The pace of new features rolled out by Google, Yahoo and Microsoft has been furious in recent weeks.

At the Oct. 20-22 Web 2.0 industry conference in San Francisco, Microsoft announced a deal that allows Bing to search up-to-the-minute postings on Twitter, with much of the software engineering done at Microsoft's Mountain View campus. Google scrambled to announce its own real-time search deal with Twitter several hours later.

Not to be outdone, Google last week unveiled a new service that allows people to search for a specific song title and see a link to that song on MySpace or Lala in their search results — a service Google described as yet another way to speed users to results.

Within minutes of Google's music launch, Yahoo posted a company blog reminding that its search engine has had the ability to show links to free audio files in a partnership with Rhapsody since 2008.

Google has been unveiling so many search changes — even tweaking the size of the search box on its sacrosanct home page and pinching advertising on the results page slightly toward its center— that it has begun a "This Week in Search" item on its company blog to track new features.

Yahoo, which has been working aggressively to make sure the look and feel of its search engine remains distinct, even though its underlying results eventually will be generated by Bing, announced a new "Search Experience" in September. Among the changes: Yahoo allows users to bundle their search results from an array of topical providers they can select. A search for a restaurant would allow a user to click on a link to Yelp results; a sports search would offer bundles of results from ESPN, or a local newspaper.

"Now the real competitors have emerged, and it's mainly Google and Microsoft, with Yahoo in there because of its brand identity," said Greg Sterling, principal of Sterling Market Intelligence.

Beyond the blue links

On each of the three biggest search sites, the basic 10 blue hyperlinks that have been the essential product of an Internet search are rapidly being augmented or replaced by deeper, richer and more detailed nuggets of data — for example, a map, photos, restaurant reviews embedded in Yahoo search results for "San Jose sushi," not just the basic links to restaurant Web sites.

Since Microsoft launched Bing in June — calling it a "decision engine" for its ability to filter out unimportant information — the new search engine has gained more than 156 million monthly searches, while Google has seen a slight decline, according to comScore.

While Google and Yahoo say Bing is not driving the innovation surge, some analysts are not convinced. "I do think Bing has put some pressure on Google," Sterling said.

Microsoft, Yahoo and Google say they are innovating because people's expectations for a search engine are far higher than they were even five years ago. People no longer search for a Web site; now they expect to find a specific piece of information, like the cheapest airfare to Chicago.

"We increasingly find that people think about search the way they think about a public utility," said Susannah Fox of the Pew Internet & American Life Project, which compiled the search data. "When you turn on a tap you expect clean water to come out, and when you do a search you expect good information to come out."

The big three search engines also search more than words. Bing offers visual searches, allowing users to browse and filter images of politicians, celebrities, album covers, or even yoga poses, as they search for information.

Clicks that count

Increasingly, a successful search is about an engine's ability to reveal a "Web of objects" — images, videos, audio files, or blog posts — rather than just a web of pages, said Larry Cornett, Yahoo's vice president for consumer products and search.

"We kicked off this huge innovation in search engines well over a year ago," Cornett said, "before anyone was doing anything else but the 10 blue links."

The new Yahoo page offers a "Search Pad" where users can note their searches. In an effort to make the results more relevant to an individual by tracking their search history, Yahoo is reading it, too.

"Every search engine looks at clicks," Cornett said. "We tried to be very open about that and say, not only is that going on, but, hey, do you want to use this for your benefit?"

At Google, speed remains king, said Johanna Wright, Google's director of product management for search.

In a recent experiment, it slowed its Web site by 0.4 seconds. The result, Wright said: People searched less.

Among the changes Google rolled out in the past three weeks are a "Jump to" link in the search results that allow a user to go directly to a keyword buried deep within a document, saving the user time, like the music search Google rolled out this week.

"Speed is something we take almost manically seriously," said Jack Menzel, group product manager for search. "We obsess about tens of milliseconds."

Microsoft, which has its Search Technology Center in Mountain View, says its philosophy boils down to helping people make a choice, sometimes limiting results when Bing decides a person knows what he is looking for.

A search for "UPS", for example, produces little on the results page but a box to enter your package tracking number, and the customer service number for UPS.

"What it amounts to is trying to build a mind-reader, to understand people," said Qi Lu, head of online services for Microsoft.

Microsoft also realized that its old search identity, called "Live Search,'' wasn't exactly hip, said Stefan Weitz, director of Bing Search.

"We wanted to make sure you could use it as a verb," Weitz said. "You want people to be able to say, 'I Binged that.' "