All Things Digital

With Yahoo (YHOO) now just a collapsed and trembling form dwindling in Microsoft’s rearview mirror, the software giant has been anxiously searching out other ways to accelerate its stalled search business. And now it appears to have found one. On Thursday afternoon, Microsoft said it is expanding its relationship with Facebook to bring its Live search and search ads to the social-networking site. “One last thing I want to talk about is an extension of our Facebook relationship where we are extending it to search and page search,” Microsoft Senior Vice President Satya Nadella told attendees at Microsoft’s annual meeting for financial analysts. “We will be providing an API to Facebook where they will create a rich search experience for the Facebook users, and that is something that they will launch in the fall working with us. And it will carry both our Web results, as well as our page-search advertising. We are excited [about this] opportunity to further expand the Live Search reach.”

Financial terms of the deal, which follows Microsoft’s (MSFT) $240 million investment in Facebook last year, were not disclosed, but are presumably pretty favorable to the social-networking site.

Google accounted for 77.4 percent of all search engine spending in the second quarter of 2008. This according to Efficient Frontier, which notes that Google claims $1.10 of every new search dollar.

How is that possible? Because advertisers are putting their new advertising dollars with Google (GOOG) and pulling some of their old ones away from the company’s rivals. Yahoo (YHOO) lost $0.09 of every new search dollar in the second quarter. Microsoft (MSFT) lost $0.01.

A dismal state of affairs if you’re Yahoo or Microsoft. That said, allocation of search marketing dollars hasn’t really changed all that much. Google maintained its 77.4 percent share of U.S. search marketing dollars, while Yahoo captured 17.8 percent of spending and Microsoft Live Search maintained its 4.8-percent share.

Dear Friends; Please do not take this for a junk letter. Bill Gates sharing his fortune. If you ignore this, You will repent later. … When you forward this email to friends, Microsoft can and will track it (If you are a Microsoft Windows user) For a two weeks time period.

For every person that you forward this email to, Microsoft will pay you $245.00. For every person that you sent it to that forwards it on, Microsoft will pay you $243.00 and for every third person that receives it, You will be paid $241.00. Within two weeks, Microsoft will contact you for your address and then send you a check.”

–Excerpt from the Microsoft giveaway hoax

My God … Bill Gates really is sharing his fortune. But not with folks who help out with that infamous Microsoft email “beta test.” He’s sharing it with consumers who use Microsoft’s Live Search engine to find and purchase products online.

Today, Microsoft (MSFT) will announce “Live Search Cashback,” a sort of search-engine loyalty program that rewards users with rebates on certain purchases of products found through Microsoft’s live.com Web search. “We want to earn your loyalty and reward it with cashback savings for your everyday online shopping,” Microsoft enthuses on the Cashback site. “We are ‘The Search That Pays You Back!’”

Cringe.

Like Microsoft’s hostile bid for Yahoo (YHOO), this new service is yet another effort to bolster its laggard search service, which has long been a very distant third in the search market. Question is, will it work? Gartner (IT) analyst Van Baker says maybe. “Assuming that the rebate amounts are enough to be appealing to people, which it sounds like they are, that definitely could attract a fair number of consumers,” Baker told the Seattle Post Intelligencer. “But what they may do is just go to that site when they’re thinking about buying something, and use Google the rest of the time.”

We see little to stop Google from reaching 70% market share eventually; the question, really, comes down to, ‘How long could it take?’ ”

–RBC Capital Markets analyst Jordan Rohan, March 2006

Not long at all, really.

They’re not the competition; they’re the environment in which you compete. The IT industry used to say that about IBM, but today the adage seems equally applicable to Google (GOOG), which dominates the search market just as IBM (IBM) once dominated the computer industry.

According to new metrics from Hitwise, Google’s share of the U.S. Internet search market grew to 67.9%–a 4% increase year-over-year. Google’s growth apparently came at the expense of rivals Yahoo and Microsoft. Though it claimed the second-largest share of the search market, Yahoo (YHOO) slipped to 20.28% from the 20.73% share it held a year ago. Microsoft’s (MSFT) Live Search, ranked third behind Yahoo, fell to 6.26% from 7.77% in that same period.

Seems the two companies’ recent efforts to differentiate their search offerings from Google’s haven’t done much to boost their respective market shares. Nor will they ever if the Google juggernaut continues as it has. As Credit Suisse analyst Heath Terry once noted, search is a natural monopoly business and there’s a decent chance that over time, Google will continue to gain share until it’s claimed most of the market.

And that may happen sooner than we think. Google’s closing in on 70% market share already. “By this time next year,” Silicon Alley Insider’s Henry Blodget writes, “Google’s search business will be larger and more profitable than the most profitable and legendary monopoly in history–Microsoft Windows.”

With the details of planned changes to Microsoft’s Live Search already revealed by a hapless product manager a few days back, the most interesting things coming out of Microsoft Searchification Day 2007 today are the metrics.

Citing independent statistics, Microsoft claims Live Search has 70 million users per month and reaches 38% of all search-engine users. Those are respectable numbers–on the face of things. Problem is, Live Search’s search market share is much lower–just 11% or so. Why? Those 70 million users don’t use Live Search with anything close to regularity. The average Live Search user performs just 15 searches on the site per month. The average Google user performs 55.

So while Microsoft may reach 38% of all search-engine users, it does so occasionally. And let’s be frank here, 70 million occasional Live Search visitors submitting a dozen or so queries a month isn’t going to catch Microsoft up to Google, which racked up 9.8 billion searches in August.

So how does Microsoft propose to narrow Google’s massive lead in online search? Same way as it did back in 2005, when Google only accounted for about 34% of all Web searches. Increase the number of documents in its search index, improve query relevance and do a better job of recognizing common abbreviations and misspellings, among other things.

But those improvements didn’t win over Google loyalists in 2005, and there’s little reason to believe they’ll do so now, either. “Habits are hard to break, and it is especially hard to break good habits,” Danny Sullivan, editor of Search Engine Land, told the New York Times. “If you’ve had a good experience with Google, you have little reason to switch.”