Microsoft Joins Search Party

"Other competitors in some cases are getting in earlier than we are, and we need to do a better job than they do," Microsoft co-founder, Chairman and Chief Software Architect Bill Gates acknowledged Tuesday at the company's annual shareholders meeting, citing Internet search as one example.

The new face of MSN search unveiled this summer at search.msn.com, however, looked remarkably similar to Google's spare, uncluttered homepage. Microsoft also promised to solve the challenges addressing today's users of Internet search engines, including long lists of search results and unsuccessful complex queries.

Mahaney noted that Microsoft already has made dramatic improvements to the algorithmic search technology with a new version unveiled a month ago. "Its search results were comparable to Yahoo! and Google, although the user interface was materially inferior," he wrote in a note Wednesday.

Financial analysts believe Microsoft's stepped-up focus on Internet search is unlikely to have any meaningful effect on the company's sales anytime soon. Rather, Microsoft's progress in search could hurt competitors Google and Yahoo!, Mahaney wrote.

But Microsoft's moves are also partly a defensive play against its two search rivals. Google recently joined Yahoo! and Microsoft in the email business and is expected to enter the instant messaging field. Google also recently beat Microsoft to market with a beta version of technology that searches a user's computer desktop as fast as a Web search, representing a big improvement over Microsoft's clunky and slow desktop search tool.

Microsoft has said it will offer its own new and improved desktop search tool by the end of the year. Forrester's Li said she believes most of the major search engines, including Yahoo! and Ask Jeeves(ASKJ), will also offer similar services soon.

"It's just going to be another checkbox you have to be a search player," Li said. "In the end, it's going to look like the portal wars of the 1990s."

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