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Should Microsoft Reconsider Its Search Efforts?

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Microsoft’s (s msft) earnings announcement and its unprecedented decision to cut around 5,000 employees has dominated the news today. Experts have already weighed in on the reasons and the ramifications (Mary-Jo Foley, for example, has information about which divisions might see job cuts). As the company tries to get its act together, one question comes to mind: Should it give up on its search and online advertising efforts? The division brought in $866 million in revenues but lost $471 million.

As Allan B. Krans, senior analyst with Technology Business Research, points out, the Online Services Group has lost a cumulative total of $3.1 billion over the past three years; losses in calendar year 2008 amounting to a whopping $1.6 billion “with more than 50 percent operating losses being reported in each of the past three quarters,” he notes today. Krans is right to point out that the large-scale transitions to cloud computing and SaaS will impact Microsoft’s business, and that it means it’s time for the company to rethink “the concerted focus on challenging Google (s goog) in the search and advertising business should at least draw a second look in light of the current business climate.”

I kinda side with Allan on this one. After all, why does Microsoft need to chase the proverbial rabbit (aka online advertising) down the hole, instead of refocusing its energies on what it knows best and expanding those markets? OK, now let’s debate about this.

Photo via Flickr courtesy of Nick, Progammerman.

13 Responses to “Should Microsoft Reconsider Its Search Efforts?”

  1. Om – I believe than Microsoft should invest in changing user search experience. It is hard and difficult also will take long time to switch people from Google to Live Search but they have to do something different than google. The other day I came across this add in called “ChunkIt” from some company called TigerLogic. I tried it, it is a different search experience for me. It is not as good as google also it needs to be installed on your browser but I liked it the way they brings information from various links in one search. I do not have to click on individual links.

  2. Marl Balou

    Om – if we believe that Search is a “winner take all” market then MSFT should exit this business since GOOG is way ahead on this. On the other hand, if there is space for multiple players, then MSFT should stay in the game – But I believe their execution on this front has been abysmal. If they want to be a serious contender, they need to setup their organization structure for faster and better execution. I think they should spin off their search and online divisions into its own entity.

  3. The elephant in the Microsoft boardroom is that they completely missed the search opportunity. They didn’t miss it by days, weeks or months, but years. The opportunity for building a business by emulation has passed them by; Google, Yahoo, Cuil and others have too much of a head start.

    The key question should be how are they going to adapt now that they have missed the opportunity? With ~$29B in cash and short term assets and a net profit margin of 29% (data of 9/08, the most recent available [1])they should be considering heavy acquisitions or innovating their way out of this mess.

    The acquisition attempt on Yahoo was laughable. If they can’t find a fast, leading-edge technology to aquire and catalyze into a serious competitor fast, they should instead focus on innovating their way out of this mess.

    With could spend their cash on hand to focus on Google’s blind spots to exploit them. The strategy would be to force a change in their business model.

    As much as I’d like to see competition, Microsoft has become a wait-and-see company and lost their competitve edge of innovation. The search model passed them by. Their focus should be on how they’re going to avoid missing the next wave by creating a new paradigm.


  4. Take their annual profit and subtract the $1 billion a year they are losing on search and advertising currently and its a small percentage to pay to get traction in a huge market that will continue to grow over the next 5+ years.

    They are not just sitting on the side lines in the SaaS space while they focus all of their investment and time chasing Google in search. Microsoft has plenty of manpower and $$$ where they can have their cash cows going while working on moving search forward. Their investments in moving apps online, Azure and their data centers actual compliment some search investments very well. For both you need lots of processing power, lots of storage, lots of bandwidth, spread geographically across the globe.

    Anyone have any stats on what Google is losing on their app related investments?

  5. Should Microsoft reconsider its search efforts? Hmmm…. good question Om. Well my opinion is Microsoft should narrow its focus on making their Office Suite the best SaaS as possible. Integrate Google search into the Office Suite to allow searching within the documents and own that. Google Docs can’t compare to Office, not yet at least.

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  6. Roman Geyzer

    As a consumer, I have to agree with Mark Johnson on this one – Google needs a serious competitor for it to continue to have the motivation to invest in innovation. However, if I was a shareholder of Microsoft’s I would be a bit concerned about just how much money is getting potentially flushed down the toilet.

    That said, for a company of Microsoft’s size and cash position to willingly give up market share in an economic downturn seems like a strategic mistake. Instead, they need to use this opportunity to make some smart acquisitions to grow their market share and visibility as a serious search player. Possibilities that immediately come to mind include Facebook, Yahoo and Twitter.

    Microsoft management needs to play to win on this one.

  7. I think they are stuck without a strategy.
    The old way of copying somebodies ideas and integrate them into the Microsoft environment does not work on a web which is agnostic to one environment.
    Which brings us to the second point. Integration, how much integration will be provided via search and related technology in a SaaS environment?
    So even if they give up on consumer search, can they integrate as good as Google if we go SaaS with apps and data stored in different clouds. Somehow we have to relate all of that, even local context is basically advanced search.
    Problem is they are stuck in Zeno’s Paradox and doing ever more short term advances, just look at Vista and the goals they set out with and what they delivered, Windows 7 points in the same direction.
    They have to leap frog Google it will not be good enough to be just as good, and without search they will be toast in the future (integration between data and apps clouds).
    We’ll see what Google thinks about all this on the 27th.

  8. @Mark Johnson,

    Good point, But isn’t it reasonable to ask the question. I mean they have been doing this for so long that it is hard to ignore the question. I think they really need to focus their dollars – spend it all on technology and then worry about advertising.,. I guess they are worrying about revenues before building killer experience/solutions.

    What do you think?

  9. Microsoft management is horrible. They have no idea what they are doing. Microsoft was in the right place at the right time with Operating System & Office suite. They are guaranteed billions of dollars a quarter in profits from these two areas that management gets to piss away.

    Microsoft should buy Berkshire Hathaway and let Warren Buffet invest the free cash flow from operations. Now THAT would be a money making machine like no other.

  10. Perhaps I’m thinking about this selfishly, since I work for Live Search (by way of Powerset), but do you really want to see one of only major competitors in search disappear? Google constantly increases its marketshare, Yahoo is floundering, Ask is pretty much dead; but Microsoft is a company with deep pockets willing to make a huge long-term investment. Given the CapEx required to build a search engine, a startup is unlikely going to be able to challenge Google, so look why not look to Live or Yahoo to become challengers? I guess I just don’t understand why people want to see the world cleared for a Google hegemony.