Microsoft’s Search Engine Struggles

Microsoft’s Search threats and From the very beginning Microsoft looked at opportunities through a lens of long term prospects. Starting with MS-DOS, Microsoft sold only its “rights to use” to IBM expecting that others developing similar systems will have the need to use similar control software. Developing this first opportunity, Microsoft established the Microsoft brand with its first equity component, the power of the computer operating system.

In order to strengthen its brand equity Microsoft developed support teams nd offered free developer tools to attract software houses, so that they will start developing applications for the PC and the MS-DOS. The first serious threat to Microsoft surfaced when Apple introduced the Macintosh, which offered a completely new approach to the meaning of user experience when it comes to operating a computer. The Apple threat was two-fold: first, Apple could capture a significant portion of the PC sales translating to lost opportunities for the Microsoft OS; second, Apple may decide to spin its OS to work on PCs.

To ensure that Apple will not annibalize its share of the OS business, Microsoft started a parallel developing effort of a new OS that featured a graphic user interface. Simultaneously, Microsoft approached its potentially future rival and offered to develop productivity applications for Apple, when no other software house showed interest in Apple due to its limited market share and its closed environment.

This move from Microsoft’s side allowed Microsoft to gain deeper understanding of Apple’s operating system and user interface, which helped Microsoft in its own efforts to develop its Windows OS using its own graphic user interface. Microsoft also saw opportunities in application development. However, as it was difficult to compete with an already well-established market dominated by WordPerfect and Lotus, Microsoft decided to shift the competition in less familiar grounds for its competitors.

As Windows 3. as gaining grounds on MS-DOS to be fully replaced by Windows 95 later on, Microsoft had now the advantage on developing applications using the rich graphic user interface offered natively by the new OS. Microsoft’s experience in developing similar applications for Apple, the standardized Ul offered by the new OS and Microsoft ntimate knowledge of both the graphic user interface and the OS itself allowed Microsoft to move quickly and develop competitive products for word processing, spreadsheet and presentation applications.

As the other software houses had already a huge investment and customer base in the MS-DOS space, they were much slower and hesitant to adopt the new Windows environment, finding themselves further. As it now owned competitive and feature rich applications running efficiently on its new OS platform, Microsoft started bundling all three applications in a single, price competitive package to ttract customers and to curve out market share from the competition. Microsoft started offering discounted prices for individual applications as well as full suites to customers who were willing to switch to Microsoft.

The discount prices and the low training costs associated with the new Microsoft applications due to the consistency of the shared user interface among applications and OS allowed Microsoft to lower the overall switching costs for the customers significantly, steal most market share and build dominance in the productivity applications market. While Microsoft was usy with the new Windows OS and applications, the shift to Internet content browsing came as the next big threat to Microsoft. The Internet browser was threatening Microsoft’s core of brand equity, the operating system and everything else that was built around it.

First, browsers could run on simplified hardware threatening the established PC market to which Microsoft was the majority OS supplier. As internet browsing could happen independently of a true OS, the need for an OS like Windows would be limited to simple functionality. The browser would take full control of the user interface, compromising Microsoft’s dominance in OS and pplications. In other words, if browsers take over the user experience, then the plane field would be leveled for all software developing houses in all fronts.

With this new threat in the horizon Microsoft focused its efforts to the Internet. It studied the market leader, Netscape at the time, and focused on duplicating similar offerings to compete head to head with the leader. Within Just a couple of software developing cycles Microsoft was able to develop the Internet Explorer browser and accompanying server supporting software to compete feature by feature with Netscape’s offering. Microsoft started the cannibalization of Netscape’s huge market share by offering both browser and server supporting software for free.

As Netscape could not compete in price, it was forced to compete in features, which raised its developing costs significantly and drove it to lose its edge. In the meantime, Microsoft tried to leverage its relationship with computer manufacturers and integrators to include IE with each sold PC. Microsoft even worked out a deal with its competitor AOL, a huge Internet provider at the time, to offer IE as the standard browser with its service to strengthen the use of its IE against all other browsers.

Microsoft continued to gain ground in the browsing business of both individual users and web administrators by offering a highly competitive product and good support at no cost. All these measures allowed Microsoft to take the market leadership away from Netscape. At this point Microsoft tried to secure its leadership position in the browser arena by integrating IE within its OS and making it part of the OS experience. The next threat to Microsoft was the Linux OS, which threatened to first take over the lucrative server OS market and then slowly expand its presence to the PC front.

Microsoft identified that this threat was going to mostly affect its corporate required expertise to sustain such a switch. Microsoft developed educating campaigns to stress the switching costs to Linux and the importance of total cost of ownership, lost business, training and support to corporate users. For those markets that were very price sensitive, Microsoft created light 2 versions of the server OS to lower cost of ownership and maintain appeal over Linux long term cost of ownership. In addition, Microsoft continued to study its competition.

It adopted some OS practices to counteract the main advantage of Linux, ts open source architecture, and tried to ensure that both platforms will coexist, if needed. Microsoft’s last attempt to cancel the Linux threat was to integrate the widely used Novell’s features into its OS to strengthen its offering against the competition and to use the open source Linux advantage a possible legal threat. Looking back on how Microsoft responded to possible threat and opportunities, we can distinguish a number of clear patterns.

Microsoft does not seem to be the one who creates new opportunities, but the one who is able to identify great potential in already existing pportunities, Jumps in and uses its powers to “force” itself to the top and become the market leader. Microsoft interest as expressed by Bill Gates is to find opportunities that affect the majority of the customers and where Microsoft can play a leading role. It appears that Microsoft always tries to capitalize on the relationship with its partners or make new partners in order to facilitate its rise to the top.

It almost always comes from behind, ignores market structures and goes to challenge the market leader and take its place. Microsoft has the ability to identify threats and turn them into opportunities. Every time Microsoft identifies a threat, it reacts quickly and launches multi-front responses to neutralize the threat and use the experience and opportunity to expand its brand equity. 2 How large is Microsoft’s competitive disadvantage in Internet search and search related advertising in 2008? If the industry remains on its current trajectory, how will Microsoft’s disadvantage evolve over time?

Microsoft had a serious time disadvantage in the area of Internet search and search related advertising. The year 2008 marked the fifth year after Microsoft decided to get involved in Internet search and search dvertising and three years after Microsoft deployed its own search and advertising management services. If we compare timelines between Google’s and Microsoft’s involvement in these two areas, we realize that Microsoft started to get serious in this domain when Google was approaching its peak of Internet search development.

Playing catch-up in these complex and high pace evolving fields proved to be a huge challenge for Microsoft. In order for Microsoft to have any success in this business, Microsoft had to go after a wellestablished search giant in Internet search and dvertising services, Google. As we have seen with Microsoft’s involvement in developing applications, Internet browsing and supporting services, even its involvement and path in the OS sector, Microsoft always came late in the game, used its strengths, core knowledge, synergies, size, resources, and relationships to go after relatively short period of time.

In the case of Internet search and associated advertising, however, the situation for Microsoft is very different. The market leader is 3 Google, who already had five years of pure innovation in these sectors prior to Microsoft’s expressed interest in the area. Soon after its involvement, Google became a well-focused player in Internet search development and search advertising services considering these services as its core business, when everybody else, including Yahoo, was turning away from such concepts. Google grew to be the dominant player in these sectors.

By 2007 Google not only dominated these sectors, but it earned its own place in the dictionary as “searching the Internet for relevant information”. On the other hand, when Microsoft got involved in the Internet search and advertising in 003, it did not have any core competencies in search engines, more specifically search engines targeting Internet content. Overall expertise in this field was very limited at the time and Google had already absorbed, if not created, most of it. So, from the very beginning Microsoft had to go against a giant in these sectors, whose main focus was to innovate and redefine the industry.

Microsoft’s core competencies disadvantage and Google’s ability to continue to innovate and dedicate all its resources to search and advertising put Microsoft in a unique disadvantage compared to previous competitive experiences. Unlike previous competitive experiences, Microsoft was not able to use its synergies directly to compete with Google. Dominance in the OS, familiarity with the graphic user interface, even its dominant Internet browsing presence were not able to help Microsoft device a marketing strategy to leap ahead of Google.

Internet search and advertising services had no dependencies on the OS, they were mostly text oriented tasks, they hardly used any graphic user interface, and they were completely browser agnostic. Coming late in the game with no core competencies and without being able to take advantage f its synergies, Microsoft could not react to the continuous progress made by Google. As an alternative, Microsoft tried to develop its MSN portal and integrate its search capabilities within the portal.

The idea of using the portal to attract users to its search engine was an interesting experiment, but it suffered from a couple of negative implications. The first implication was the fact that Microsoft’s focus on the portal was not its search engine, but its revenues from other sources. Thus, under certain circumstances the structure (clatter) of the MSN portal managed to lose users to other portals (i. e. Yahoo) losing opportunities to exercise its search engine. In addition, as Microsoft’s search engine was bound to the MSN portal, it did not develop its own character to go against Google’s clean search characteristics.

As a result, Microsoft’s “portal” search was considered good enough for simple and quick searches for those users that used the MSN portal. On the other hand, Google’s search was used by almost everybody for advanced searches independent of the portal users might have used for getting their other information. This inflow of complex and more specialized searches towards Google’s search gave the ow to filter and organize search results more effectively while depriving Microsoft from this opportunity.

Google’s brand name was enhances as a result, 4 while Microsoft’s attempt to gain market share via the portal did not produce the expected results, nor it help strengthen its brand equity against Google’s. As Microsoft is trying to enforce its portal to users via its ‘E, Google strikes back with Firefox, then Google toolbar and then a more decisive move by creating its own browser, Chrome, promising a superb browsing and searching experience and going against Microsoft.

Microsoft finds itself in a competitive disadvantage under which it ot only loses search users to Google, but IE and MSN portal users to Google together with all the benefits such users carry for revenue and for gaining search experience. I this case Google is well capable to bring the fght back to Microsoft to protect its turf. Microsoft’s limited internet focus compared to the rest of its business made Microsoft very slow to react and respond to Google’s expansion and proliferation in a number of Internet based offerings.

As Microsoft’s core businesses have been elsewhere, it was difficult for Microsoft to follow Google project by project. As Google was creating ore user experience, Microsoft was falling behind in offering similar experiences to its internet users as it was trying to focus its efforts in improving its search capabilities. Projects like Picasa, Google Docs, Google Calendar and Notebook, Google Maps, Google+, etc. drew more users to Google and further strengthened its brand equity making it even more difficult for Microsoft to attack Google’s market leadership position.

Concurrently, Google dedicated even more engineers to the improvement and fine-tuning of its search engine, indexing, filtering and advertising efficiencies, orcing Microsoft to always play catch-up. To counteract the fact that Microsoft always had to play catch-up, Microsoft identified an opportunity to become an effective market challenger to the market leader by combining forces with Yahoo and strengthen its position in the market structure. However, the competitive character and culture that Microsoft was known for over the years stood as another disadvantage for Microsoft.

Microsoft’s past aggressive practices dealing with competition and smaller companies made the deal with Yahoo fall apart at the end leaving Microsoft a distant third in the market. Microsoft’s sensitivity to legal issues forced another disadvantage upon its quest to gain market share in the search related advertising business. Microsoft imposed more restrictions on advertisers promoting more of a fair game than allowing advertisers to step boundaries. Google offered a more open structure to advertisers when competing for ad opportunities and user exposure.

Offering a more restrictive environment combined with ranking third in the Internet search sector made it difficult for Microsoft to attract more advertisers and gain ground on the market leader. Being a distant third player in the Internet search and advertising business made it difficult for Microsoft to play a more decisive role in the direction the industry was going. Even when trying to innovate by introducing new technologies that could give Microsoft an advantage (i. . semantic search and web concept), Microsoft could not make its technologies gain enough following Google than trying to adopt Microsoft’s paths.

By considering all these competitive disadvantages that Microsoft is facing in the Internet search and related advertising, we can certainly see that Microsoft is not in a osition to capture a large market share, go after the market leader, use innovation and resources to advance its position, influence the industry or consolidate with other main players to move a step forward in becoming the market leader. Microsoft experienced a significant decline (32%) in the search engine market share between July 2007 and November 2008, when Yahoo declined by only 13%, allowing Google to gain about 15% on its market share strengthening its position.

If we assume that by the end of 2008 and beyond the relevant accuracy of Microsoft’s search results are quivalent to Google’s search, Microsoft will have the opportunity to experience more active search traffic through its search engine. Not being able to gain an advantage on search accuracy over Google, however, will make it difficult for Microsoft to attract loyal Google search users to its camp. This slow increase in user searches will not be enough for Microsoft to steal more advertising customers away from Google.