Microsoft Search Engine: Do We Laugh or Cry?

Microsoft, crimped by slowing PC sales, is exploring the world of Internet search.
Publish date:

Updated from 11:53 a.m. EST

SAN FRANCISCO -- If it was anyone other than


(MSFT) - Get Report

CEO Steve Ballmer continuously beating his head against a wall, you'd tell him to stop.

At this point, however, isn't it really time to embrace this "other" Cult of Steve for the sheer passion and earnestness he brings to his role? He is, without a doubt, the

Tommy Lasorda

of CEOs -- a company cheerleader with the

videotaped seizure

to prove it.

The sooner that we all take part in bestowing upon Ballmer the mad genius designation, the sooner we can sit back and enjoy the ride, unworried about the hundreds of millions of dollars that he may pour into some ill-fated business strategies.

As Tuesday's

Wall Street Journal

reported, Microsoft has begun testing a new Internet search service, dubbed Kumo, as the company attempts to improve its third-place standing in Internet search market share.

Or put more correctly, Microsoft is attempting to gain more of the approximately 15% market share that is not taken by


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-- the only portion that will be available for the foreseeable future.

On some common-sense level, away from the metrics and financial modeling, we all know how this is going to turn out. The search-engine battle is over, and Google has won it. The only real surprise, perhaps, has been that Yahoo!'s second-place standing seems to be much more secure, with the company's share holding firm in recent months at about 20%.

Part of Microsoft's fantasy regarding search is a) that the entire search experience can be improved, and b) that it can be done so to a discernible agree.

But search is a little past that, isn't it? Four of the top 9 searches on Google's most recent "Hot Trends" list were related to last night's episode of

The Bachelor

. Do you really think people are turned off because the terms "Jimmy Kimmel Jason Mesnick" -- referring to said bachelor's appearance on the late night talk show -- only came up with 7,980 hits in 0.13 seconds.

Are we really lacking here?

What has been learned from the short race to the finish in search is that, underneath Google, market share is doled out based on overall strength in online presence. This is ultimately why Yahoo! has remained where it is. It's also why the leverage has changed between the two companies for any kind of future search-operations merger. We have found ourselves asking, who needs whom here?

It's that weakness in Microsoft's overall online business that is the larger concern. In the company's recent second-quarter earnings report, Microsoft's online division posted an operating loss of $471 million, bringing the company's year-to-date loss to $950 million. For a division that's only supplying 5% of company revenue, that's an unfortunate cash drain.

And it doesn't look to be reversing anytime soon. Collins Stewart analyst Sandeep Aggarwal suggested on Tuesday that, barring a deal with Yahoo!, the company's online division will continue to suffer from a limited reach of end-users, a small scale of advertisers, no material gains in search queries, and insignificant international presence.

On the other hand, Microsoft and Ballmer are between a rock and a hard place. The company's core business, of course, is selling its Windows, Office and server operating system software to a now-quaint PC universe that has been the standard for more than 20 years.

As the PC market goes -- and it currently isn't -- so goes Microsoft's profit potential. While a positive reception to the company's release of Windows 7 may change some timing of computer purchases, the drab macro-economic outlook is running the show for now.

Microsoft has figured out that, despite its Old World beginnings, the online world has to be part of its future. But so far, it's been too little, too late, and too much money spent.

Such is the irony of being the Google of operating systems.