Never shy about arriving late,
is expected to launch a new version of its search service Thursday as the software titan seeks a stronger spot in that lucrative corner of Internet advertising.
Consumers can expect a significant improvement over the so-called alpha version of algorithmic search
unveiled this summer, which Charlene Li, a principal analyst with Forrester Research who covers media and marketing, simply called "ugly." The beta version will likely remain tucked away at a more obscure Internet site than Microsoft's flagship MSN address, but will likely move to MSN a couple of weeks later, Li speculated.
A representative for Microsoft called numerous media reports about the Thursday launch of a beta version of MSN search "speculation" and declined further comment.
Currently, Microsoft is using search engine technology from
Inktomi division and paid search results from Yahoo!'s Overture division. Microsoft is expected to replace the Inktomi technology with its own algorithmic technology but to extend its contract for Overture paid search results after it expires in June 2005, according to American Technology Research analyst Mark S. Mahaney. (Mahaney does not cover Microsoft and has a buy rating on Yahoo! and a hold rating on
. His firm doesn't have an investment banking arm.)
Microsoft's decision to develop its own search technology undoubtedly must be taking some cues from Google, the most heavily used search site in the U.S., whose stock has been on a
tear since its much-ballyhooed IPO. Google search sites commanded 36.1% of U.S. Internet searches in August and 51% of U.S. toolbar searches, followed by Yahoo! sites with 30.6% of searches and 43% of toolbar searches, and MSN/Microsoft sites with 14.4% of U.S. searches.
Google, which generates sales from ads posted with search results, more than doubled its top and bottom lines in its recently completed third quarter, earning $52 million on $806 million in revenue. Microsoft's MSN division, which generates revenue from paid search results and other Internet advertising, trails behind Google's business considerably, earning $77 million in operating income on $540 million in revenue in the September-ending quarter.
"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
, 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."