January 16, 2007

When Bill Gates was asked for a plan in beating Google in Web search technology, he gave Microsoft engineers just 100 days to develop a new search portal.

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"Go with everything you've got" Gates told Stephen Lawler, Microsoft's project leader of the just-formed Virtual Earth team. The development team met Gates' first deadline, as well as other equally important milestones in the two years that ensued.

However, Microsoft's efforts has yet to pay off in a big way. It seems that the harder the programmers from Redmond race after Google, the more the Mountain View company appears to rapidly move forward.

During 2006, Microsoft introduced many new online offerings. In addition to the widely praised Virtual Earth, an exact 3-D representation of major U.S. cities, there were three new search services, a new portal, online video, classified ads, mobile email and social networking.

Perhaps most importantly, there was Microsoft's new adCenter software released in May that was supposed to help MSN make more money from its online offerings. As a result of all these efforts, the number of visitors to Microsoft's sites has not increased, while the amount of time they have spent there has dropped significantly. To make matters worse, advertising sales have fallen.

At the same time all of this was happening, Google's overall traffic and advertising revenues have continued to increase, almost exponentially. Overall, Microsoft executives say they are taking the long view. "We feel like we have the right services in place and the right team in place to be successful, but it is super early in this entire space," said Adam Sohn, director of global sales and marketing for online services.

Official optimism aside, the early results have been grim to say the least. According to comScore Media Metrix, the total unique audience that visited Microsoft's U.S. websites in December of last year was roughly 117 million, unchanged from 2005.

Overall, Google is rapidly catching up, with its number of unique visitors up 21 percent to 113 million. MSN's page views, an approximation of how long visitors spend at its sites, was down 12 percent in December 2006 to 18 billion, according to the research firm. Google's page views were up 90 percent to 13 billion.

Microsoft has steadily lost ground in search, despite developing its own search engine a little over 2 years ago. As of November 2006, Microsoft's share of Internet searches has fallen to 8 percent. In January 2005, when MSN search was released in beta, Microsoft share's of searches stood at 14 percent, according to Nielsen//NetRatings.

Microsoft's Internet slide is reflected in its online sales. During the quarter ended Sept. 30 2006, sales for the online business unit were $539 million, down 5 percent in a year. In comparison, Google reported revenue of $2.69 billion, an increase of a little over 70 percent.

"Google is the next Microsoft because Microsoft is the next IBM," said Stephen Arnold, a technology consultant and author of "The Google Legacy." "Just as Microsoft superseded IBM, Google is superseding Microsoft."

Google's executives have avoided crowing over Microsoft's misfortunes. But in a recent article that he wrote for the Economist magazine, Google Chief Executive Eric Schmidt predicted that open Web-based standards would "sweep aside the proprietary protocols promoted by individual companies striving for technical monopoly in 2007."

"The past few years have taught us that business models based on controlling consumers or content don't work," Schmidt wrote. Microsoft Chief Executive Steve Ballmer and Chairman Bill Gates continue to tout Microsoft's ability to innovate, citing new features in core franchises like the operating system and software applications as well as in gaming.

"In 2007, for Microsoft it's a big, a big milestone, because the products we've been working on for many years that are foundational products are now moving into the marketplace," Gates said during his keynote speech at the Consumer Electronics Show in Las Vegas last week.

As Gates spoke, a Microsoft employee demonstrated Virtual Earth as an example of the type of Microsoft innovation the company is pursuing. Using an X-Box controller, the employee flew through a 3-D replica of Las Vegas projected on screen. "This is pretty fun. It's also practical," said Justin Hutchinson, who ran the demo during Gates' talk. "If I'm new to town, I can get a sense of where everything is."

However, even people who praised the product wondered if it might exceed the needs of the average person.

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Source: Mercury News