John Aiken Quoted in Wall Street Journal

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New Search Engine
From Microsoft
Gets Cool Welcome

By KEVIN J. DELANEY and ROBERT A. GUTH
Staff Reporters of THE WALL STREET JOURNAL
September 22, 2005; Page B1

With the major reorganization it announced this week, Microsoft Corp. is trying to move more quickly and aggressively against Google Inc. and other nimble competitors.

But the recent experience in the Web search realm by Microsoft's MSN unit -- regarded as one of the more agile parts of the software giant's empire -- suggests that even Microsoft's best efforts can face a tough time gaining ground on Internet rivals.

Microsoft in February switched the search function on its Web sites from technology provided by Yahoo Inc. to Microsoft's own search engine. Since then, Microsoft's share of Web search queries in the U.S. has slipped, according to several research groups.

A study conducted earlier this year concluded that more consumers found MSN's search results to be less relevant to their queries following the switchover, say people familiar with the matter. Meantime, MSN executives say they have been surprised at how quickly Google has increased the average ad revenue it generates for each consumer search.

Within the MSN unit, Microsoft is pushing hard to increase the relevance of the results it returns to users. And it is planning an ambitious marketing campaign to bolster the MSN brand against Google, which commands the leading share of search queries despite buying almost no advertising.

In another challenge to Google, next month in the U.S. Microsoft plans to open a test version of an automated system that will sell search advertising directly. Currently, most of the search ads on Microsoft sites are sold by Yahoo.

Microsoft says some research actually shows it is gaining ground on competitors. "It couldn't be further from the truth than to say that we haven't made fast progress," says Yusuf Mehdi, a Microsoft senior vice president who is heading the search effort. "We are very close to closing the gap" in the relevance of MSN's results versus those of Google, he adds.

Last November, Microsoft started rolling out its new search engine technology, which took 20 months and more than $100 million to develop. "We will catch up, and we will surpass" in search, Chief Executive Steve Ballmer vowed at the time. By February, Microsoft had entirely replaced the Yahoo search technology it had been licensing, and Microsoft bought a TV commercial during the Super Bowl to promote its new search system.

MSN earned kudos for its speed in developing a new search engine, a formidable feat. But a paper drafted for Chairman Bill Gates earlier this year highlights the remaining challenges.

The paper, written by several MSN executives, was titled "Google -- The Winner Takes All (And Not Just Search...)." It made the case that "Google threatens Microsoft's position on the Internet, and could potentially lock Microsoft out of its existing distribution channels and reduce the value of Windows," according to a copy reviewed by The Wall Street Journal. It stated that MSN had failed "to produce better and more innovative products than Google" and was engaged in "an expensive game of catchup."

The executives' suggestions included fighting Google by sharing online ad revenue with computer makers, to motivate them to continue distributing its Windows operating system and its Internet Explorer browser. This year, Microsoft has begun pursuing another tack: Microsoft had talks, now stalled, with Time Warner Inc. about combining their Internet businesses in a joint venture that could strengthen Microsoft's search traffic and advertising, says a person familiar with the matter.

By summer, market research suggested that MSN's new search engine was losing at least a little ground with consumers. Users conducted 4% fewer searches using MSN during the second quarter compared with the first quarter, according to research firm Nielsen/NetRatings. Its major competitors gained, including 15% for America Online and 16% for Ask Jeeves, which was recently purchased by IAC/InterActiveCorp.

Another research firm, Majestic Research Corp. of New York, estimates a 7% decline in the number of searches that Microsoft handled during that period. "Everything we've seen has suggested they lost market share since the new Microsoft search engine came out of beta [testing] in February," says John Aiken, the Majestic Internet analyst.

MSN executives say a better indicator of its progress is the number of search-results pages that consumers consult. On that basis, Microsoft's U.S. search market share rose to 16.4% in July from 14.2% in January, according to comScore.

Still, there is other evidence that many consumers don't view MSN's new search engine as an improvement over Yahoo's. Microsoft dropped to No. 5 after the search technology switch, compared with No. 3 before the switch, in one ranking of search engines based on a survey in the second quarter of some 2,000 consumers conducted by Keynote Systems Inc., two people familiar with the survey say.

The percentage of users who felt MSN's search results weren't relevant to what they were looking for rose significantly, jumping to 27% from 17% for general search tasks and to 37% from 29% for searches related to specific geographical locations, those people say.

After getting a preview of the results of the research and Keynote's plans to highlight Microsoft's slip in a press release, Microsoft requested that Keynote not make the results public, a person familiar with the matter said. Keynote, of San Mateo, Calif., says it made a "business decision" not to disclose findings from the study about specific engines. In a December regulatory filing, Keynote named Microsoft among its 10 largest customers by revenue.

Lisa Gurry, a director in MSN's information services group, acknowledges that Microsoft asked Keynote not to release the study. She says the results sharply diverged from Microsoft's own surveys, raising questions about Keynote's methodology. MSN's search-result relevance has improved significantly as the result of a search-engine upgrade that took place in July, after the Keynote survey was conducted, she says. In surveys MSN conducted over the summer, consumers scored its results about 50% relevant, compared with 40% in January and roughly 55% for Google results during both time periods, MSN says.