Microsoft Search Engine: How They Will Compete
[BRIEFING.COM] This morning, the Wall Street Journal preannounced Microsoft (MSFT) new search engine, expected to be unveiled tomorrow. Google stock (GOOG) appears to have been adjusting for this since for the past week, as the stock is off 28 points (15%) since last Thursday. Is there room for yet another search engine? We think so - and if Microsoft is not shy about exploiting its control of the desktop yet again, it might easily become a significant player in the internet search engine space. Here are some thoughts on how Microsoft could do this.
Already Proven That First Mover Advantage Not Important
As we pointed out in a prior Ahead of the Curve article, 26-Oct-04 Google Tops Yahoo: So Much For First Movers, the first-mover advantage in the search engine space did little to prevent Google's astonishing growth.
Traditional thinking about the first-mover advantage concept would have argued that Yahoo!, (YHOO) with its five year lead on Google, would have been able to effectively keep Google from intruding on its dominance of the search engine space.
Yet Google seems to have gotten around any advantage that Yahoo! might have had in a dramatic way: they reinvented the business model for search engines.
Google's Secret
Google's growth came about because they found a way to change the model for advertising on the internet.
Instead of selling the first generation type of internet ad, the banner ad, Google sold search results as a type of advertisement. In addition, because Google presents search results based upon how many times the particular link has been clicked on by prior users, instead of the more common relevancy algorithms used in other search engines, the advertisements are often more in-line with what the user is actually looking for.
In addition, Google very aggressively marketed its search engine and its advertisement inventory on an OEM basis, where other internet sites could cheaply integrate a search engine. The partner sites pay little to nothing to incorporate the Google technology and share revenue with Google on click-throughs by users to advertiser sites.
This business model has worked incredibly well, making Google's amazing growth in just five years one of the all-time stories in business history.
The Google business model was markedly different from the Yahoo! business model, which was built on the concept of the banner ad. In the banner ad world, simply viewing a banner ad generates revenue. Yahoo! strategy for most of its existence was to increase the number of pages available for users because this increased the shelf-space upon which a paid advertisement could be placed.
The effectiveness of the banner ad has declined in recent years and while Yahoo! has been successful in their approach, Google's innovation allowed them to grow unimpeded by Yahoo!'s initial dominance.
Microsoft's Competitive Advantage
Now it will be Microsoft's turn.
Can Microsoft be innovative enough, as Google was, to create a dynamic growth trend for their search engine?
We think they can, as Microsoft still enjoys a distinct advantage they have had since the dawn of the Windows era of PC computing: they own the desktop.
There are two ways that Microsoft can easily exploit the ownership of the desktop.
Make Internet Search An Integral Part of the Desktop
The first is to make searching the internet an integral function of the desktop, invocable by a single click on a default desktop icon. A search-specific version of Explorer could be created that is customized for searching the internet and which works only with the Microsoft search engine.
To use Google a user must first open a generic browser, then select the Google site from either a favorites link or by typing the url into the browser window. Even though this is not a difficult task, it still requires time and effort.
If Microsoft places a Search Icon directly on the desktop of every PC, a single click would invoke a browser and the Microsoft search engine all at once. All a user would have to do is type in their own search parameters.
In addition, a facility for storing and recalling search efforts could be easily built into this search-based-browser which would not be available in a vanilla version of Microsoft Explorer. Features can be added that would make searching unique to the individual and helpful over time. For example, useful features might include the following:
easily redo a search performed earlier
email search results to another user
accumulate a database of your frequent search topics, with the idea of refining over time the type of results that you are looking for
By making the search activity more effective and then embedded those features in a Microsoft specific software application, Microsoft can migrate users towards its search engine.
Integrate the Search Engine Deeper Into The Operating System
In addition to exploiting the dominance of the desktop, Microsoft can also exploit their control of the operating system.
By making their search engine and specific search features apply to a local PC or intranet, something that Google and Yahoo! can never do, Microsoft can make their search engine become the first-choice method of search by habit, rather than by marketing.
Once users become accustomed to searching their own PC and their own intranet using the Microsoft search-specific application, it is likely that users will simply start using it for general internet searches as well.
The Business Model
In addition, it is possible that Microsoft will alter or reinvent the business model of buying a prominent spot in search results, as Google did.
However, on this idea, we currently do not have a clear vision of how Microsoft might innovate. Perhaps we will find out tomorrow.
Conclusions - It Is Possible For Microsoft To Compete
There is no shortage of viewpoints that Microsoft is too late to the party to be a meaningful player in the search engine space, much less become its dominant player.
However, Google has already proven that the search engine space is vulnerable to new approaches.
Certainly the entire function of searching the internet is far from what it could - and should - be. How many times have you searched for something, consumed several hours, and not really found what you were looking for?
In addition, Microsoft essentially used similar tactics as those we listed above to unseat Netscape's Navigator browser from its early dominant position. Why not do it again?
The real question is how much Microsoft wants to exploit its operating system monopoly position to make their search engine the first-choice of users.
We think CEO Steve Ballmer will be willing to push his exploitation efforts as far as he can. HE might even be willing to invoke the wrath of the Justice Department all over again. Why not? He basically has won all prior battles related to antitrust issues. Whatever penalties and adjustments Microsoft has had to make have not significantly hurt them in the long run. Mr. Ballmer may in fact view antitrust problems in the same way that many drivers view speeding tickets: just part of the price of doing business.
In any event, tomorrow's unveiling of the new Microsoft search engine is worth watching. It probably marks a brand new era in the history of the internet.
The white man seeks to conquer nature, to bend it to his will and to use it wastefully until it is all gone and then he simply moves on, leaving the waste behind him and looking for new places to take. Chiksika (Kispokotha Shawnee),March 19,1779
