As Search Wars Continue - Vertical Search Takes Centre Stage

Microsoft is working hard to give Live Search a much need boost -but is time running out? The Search Landscape in most Markets is still dominated by Google Inc. (GOOG ) and to a lesser degree - Yahoo Search (YHOO ). In February 2005, Microsoft's MSN Search accounted for nearly 14% of all Web searches, compared with a 46% share for search leader Google, according to research firm Nielsen//NetRatings. At that time, Microsoft lauched it's Monarch Search Platform and later that year, rebranded it's MSN Search - calling the refurbished engine - Windows Live Search and later - Live Search.

Just two years later, Microsoft's rebranded Windows Live Search has a 9.6% share, compared with Google's nearly 56%. That amounts to nearly 300 million lost searches per month.

This is a troubling trend. Revenue from online advertising is relatively small--just $836 million in the first six months of the fiscal year ending in June, vs. $5.9 billion in sales of the Windows PC operating system. But the Web is increasingly the place where computing gets done. Everything from e-mail to customer-relationship management applications is moving from programs on a PC to services on the Net. Meanwhile search advertising is exploding: Piper Jaffray & Co. (PJC ) says it should hit $44.5 billion by 2011, up from $15.8 billion in 2006. If Microsoft can't keep pace, it risks seeing its Windows and Office software franchises erode as Google and others launch Web-based rivals.

Early on, Google used its simple Web site to cement the impression that to search is to "Google." And because more people search there, Google has more data with which to target relevant ads. The result: By some estimates, Google nets at least 50% higher revenue per search than No.2 Yahoo and other search sites--allowing Google to keep investing more in improvements. For instance, on Mar. 21 it revealed a new program to give advertisers the opportunity to pay only when someone responds to an ad, by purchasing a product, filling out a form, or some other action--rather than merely when they click on it. That may be more attractive to advertisers who want concrete results. The Strategy seems to be working, In May, for example, only 8.4% of all searches among U.S. Web surfers went through Microsoft's MSN or Windows Live engines, compared with Google's 56.3% share, according to research firm Nielsen//NetRatings (NTRT).

Microsoft's recent focus on Vertical Search is good strategy. I think we will continue to see more oa a focus on vertical sites, as users become more sophisticated. The purchase of Medstory Inc., a health-care search engine for consumers and Tellme Networks Inc. are useful first steps. Microsoft is also trying to nudge its massive customer base over to its search engine. On Mar. 13 it struck a deal with PC maker Lenovo Group (LNVGY ) to preload machines with the Windows Live toolbar, which leads users into its search engine. Microsoft also launched a "trial program" where it offers some large businesses service and training credits--from $2 to $10 per computer--to get employees to use Windows Live Search. Sure, that amounts to buying business - but give the company credit for doing what it takes to create awareness about Live Search.

Now if they could just improve the relevance of their algorithmic results - then we'd really have a 3 horse race on our hands.