"Given Google's large head start in the market and its ongoing momentum, we think it will be very difficult for Microsoft to have a real impact in the online search market during 2007," Krans said. "However, Microsoft continues to take a long-term approach to this market, and plans to keep the investment dollars flowing into its ad business."
Google continues to gain market share while Yahoo and Microsoft Live Search struggle. To compound the problem, Google gets nearly twice as much revenue per search as Yahoo or Microsoft.
Consumer market share for search is great, but the real money in search is made on the PPC advertising side. Yahoo is just launching their new "Panama" ad serving program, and Microsoft launched its AdCenter last quarter.
The ad serving programs serve several functions. They provide an automated way for tens of thousands of advertisers to bid for key words in an auction style format. The ad serving algorithm also matches ads with keywords, but more importantly, it decides which ads will generate the highest click through. Meaning, the highest bidder for a key word will not necessarily generate the highest click through, so the ad serving algorithm constantly adjusts which ad to serve based on expected click through response.
It is NOT early in the game. Search is a 10 year old business. AltaVista was the visionary and the leader for the first 3 or 4 years. Google really took over about 5 years ago and just keeps getting stronger.
The consumer search market is HUGE. Microsoft could make a billion dollars with just 10% to 15% market share. Yes, it is that big. You don't get the bragging rights for being the market share leader, but you can make handsome profits with just a small market share.
Look at Apple for an analogy. They have about 5% share of the personal computer market and they do just fine. Great brand, good products, loyal customers, and very profitable. What is wrong with that?
Robert Scoble suggests some alternative strategies like vertical search engines. He suggests Krugle, a code search engine for developers, as an example of a vertical search niche that could be profitable.
I have suggested Mobile Search, Local Search, and Classified Search as promising areas in search.
I agree with Scoble; "So, what should their strategy be? Go for a little cut against Google. Don’t try to attack Google’s castle head on. That won’t work. Instead, flank them."
What would you do? OK, put yourself in Steve Ballmer's shoes. What would your search strategy be?