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Microsoft Going After Google
By Jim Hedger, StepForth News Editor,
StepForth Placement Inc. (c) 2006

"This is hypercompetition, make no mistake," Bill Gates,
November 2005.

Gates is worried about Google and has been for a while. For
years, observers have watched Microsoft, imagining the frantic
pacing behind closed office doors in the executive suites,
waiting for something major to happen. There have been articles
about the rearrangement of furniture around the board table and
the flinging of furniture across Steve Ballmer's office but, for
the most part, very little of substance has been written about
Microsoft's plans to deal with Google. That's because, until
recently, the moves Microsoft has made have appeared to be
either cosmetic and internal, or clumsily executed and easily
thwarted. This week, work that's been happening in the
background is showing fruit.

For Microsoft, the month of May has come in like a triumphant
lion. When you are used to being the king of the pride, nothing
says success like taking big chunks of business from the
competition and over the past few days, Microsoft has scored big
gains in its fight against Google. These gains, coupled with
today's rumours of a Microsoft/Yahoo partnership, make the
Wizards of Redmond suddenly dangerous, opening two new phrases
in the ongoing search engine wars.

Microsoft's resurgence actually began last month with the hiring
of former Ask Jeeves CEO, Steve Berkowitz as SR. VP of MSN's
online business group. A Microsoft press statement said
Berkowitz will be, "...responsible for running the Online Business
group, which includes include MSN.com, MSNTV and MSN Internet
Access programming, advertising sales, business development, and
marketing for Live Platforms, MSN and Windows Live."

The recruitment of Berkowitz gives Microsoft an important voice
with an outside view whose credibility as a search business
leader has been established several times over. His hiring also
indicates Microsoft is starting to look outside of its own box
for leadership as it moves forward into an era that can only be
described as cooperative competition, a historically difficult
phrase to utter on the Microsoft campus.

Microsoft has been in talks with other Internet technology firms
such as Yahoo, eBay and Amazon for months now as Google's stable
of services and products continues to grow and present threats
to firms that would otherwise be its search partners. Ever since
its talks with AOL were short-circuited at the last moment by
Google in January 2006, Microsoft has been looking for a strong
content-distribution partner.

Earlier this week, Microsoft's new search tool, WindowsLive
(http://www.live.com/) became the engine powering Amazon.com's
search engine A9.com (http://a9.com/-/home.jsp?nc=1) and
navigation/data aggregation service Alexa.com
(http://www.alexa.com/). Amazon had used Google to provide
search results for their users in a deal dating back to 2003,
making the partnership one of the larger distributors of AdWords
advertising. That deal expired this month, allowing Amazon to
make the switch.

Google was the previous search engine partner of choice for
Amazon for a number of reasons. In 2003, Google was the
undisputed leader of search tools, providing approximately 75%
of Internet search results across several platforms, including
AOL and current rival Yahoo. It also provided paid-advertising
services across Amazon search properties, an arrangement that
should have been as lucrative for Amazon as it would have been
for Google. In previous years, working with the then upstart
Google was not only a measure of coolness; it had the makings of
a secure partnership with a growing company that prided itself
on avoiding evil doings.

The tenor of relationships between Amazon and Google began to
change late in 2005 when Google introduced its mysterious Google
Base listings system and the development of secure online
payment system. Though it likely loses a bit in revenues by
dropping Google, Amazon is also moving to protect itself from
Google's apparent encroachment into the business of online
sales.

A similar chill is developing among many of the largest players
in the Internet services sector. Late last month, the Wall
Street Journal reported auction giant eBay was in talks with
Microsoft and Yahoo, mapping out a cooperative strategy to
compete with Google. Other tech firms are also rumoured to be
speaking informally with each other, all with an eye on the
suddenly disruptive growth of Google.

The most interesting rumour stemming from these meetings speaks
of a partnership or merger between Microsoft and Yahoo.
According to a story, "A Microsoft, Yahoo Tie-Up?"
(http://online.wsj.com/article/SB114662449016042303.html?
mod=home_whats_news_us) appearing in today's Wall Street Journal,
Microsoft and Yahoo executives have been involved in talks
ranging from greater collaboration to out-right acquisition.
While the prospects of Microsoft acquiring controlling interest
in Yahoo are slim, increased cooperation between the two is very
likely.

For Microsoft, Yahoo has a good pay-per-click advertising system
in Yahoo Search Marketing (YSM). It also has the most trafficked
set of web properties in the United States with hundreds of
millions of loyal users. Its ad distribution network is
scheduled for system-wide improvements in the coming weeks.
Yahoo also holds thousands of older patents purchased during its
acquisitions of AltaVista, Overture, AlltheWeb, and dozens of
other search related firms.

For Yahoo, Microsoft's ability to control defaults on Windows
users' desktops, combined with the distribution of subtle
branded inclusions in subsequent Windows operating systems,
gives Microsoft an advantage Google is struggling to adapt to.
If Microsoft wants to default users to WindowsLive before
offering a selection of other search engine options, it can.
Google and Firefox have a similar arrangement.

Both Yahoo and Microsoft want to present themselves as credible
alternatives to Google's AdWords programs and each provides the
other with the tools necessary to build one. For Yahoo, a deal
with Microsoft represents the widest possible distribution
network for YSM advertising.

For advertisers and search marketers, a deal between Microsoft
and Yahoo could bring much needed competition and growth to the
search marketing industry. It could also benefit search engine
users by introducing a healthier competitor in the organic or
natural search listings.

The coming months are going to be very interesting as
discussions between many of the largest players on the Internet
continue. The Amazon announcement and Yahoo speculation follow
last week's revelation that Microsoft is going to spend
$2Billion more than it had previously projected with the bulk of
those monies directed towards Internet services.

In a defining series of internal memos on the nature of Internet
Services, Microsoft chairman Bill Gates, and Chief Technical
Officer Ray Ozzie, stressed the urgency of competition with
Google to Microsoft's staff.

"... We must reflect upon what's going on around us, and reflect
upon our strengths, weaknesses and industry leadership
responsibilities, and respond. As much as ever, it's clear that
if we fail to do so, our business as we know it is at risk. We
must respond quickly and decisively." Ray Ozzie memo, Oct 28/05
(http://www.scripting.com/disruption/ozzie/TheInternetServicesDisruptio.htm)
to: Executive Staff and direct reports

"The next sea change is upon us. We must recognize this change
as an opportunity to take our offerings to the next level,
compete in a manner commensurate with our industry
responsibilities, and utilize our assets and our broad reach to
reshape our business for the benefit of the users of our
products, our customers, our partners and ourselves." Gates Oct.
30/05 email memo (http://www.scripting.com/disruption/mail.html)
to: Executive Staff and Direct Reports; Distinguished Engineers

The world of search is never still but the next few months are
shaping up to be among the most interesting and defining times
for business and advertising online. Microsoft is finally making
its moves and in typical style, they are big, bold and broad. It
has never faced a competitor as skilled or as universally loved
as Google but the process of going after Google has clearly
begun.
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Jim Hedger is a writer, speaker and search engine marketing
expert based in Victoria BC. Jim writes and edits full-time for
StepForth and is also an editor for the Internet Search Engine
Database. He has worked as an SEO for over 5 years and welcomes
the opportunity to share his experience through interviews,
articles and speaking engagements. He can be reached at
"jimhedger@stepforth.com"
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