Mar 25, 2004 (02:03 PM EST)
Microsoft Concedes Misstep In Search Technology

Read the Original Article at InformationWeek

REDMOND, Wash. (AP) -- When Microsoft Corp. entered the Internet browser war in the 1990s, Netscape Navigator was the early leader and Microsoft's Internet Explorer the late-blooming upstart.

Now, Microsoft is gearing up for a similar battle in search technology.

Chief executive Steve Ballmer conceded Thursday that one big misstep by Microsoft over the past few years is that the company did not put resources toward in-house research and development of search technology.

"That's probably the thing I feel worst about over the last few years--not making our own R&D investment," Ballmer said at a conference for online advertisers held at Microsoft's Redmond campus.

Instead, he said, the company had relied on outside sources for that technology. Joking that the pervasive software giant is often stereotyped as "doing it all," he said: "This is a case where we didn't do it all--and I wish we had."

But Microsoft is now turning its considerable might toward catching up. It's a move that puts Microsoft head to head with Google, the world's most popular Web surfing vehicle, and Yahoo, the Internet's most popular destination, in what many see as an important, growing, and lucrative market.

"I think you'll see some good competition in this area," Ballmer said.

Ballmer mentioned the European Union's ruling against Microsoft only in passing, when asked about rumors the company may be making some big acquisitions. He said he hadn't heard that; he'd been too busy paying attention to rumors coming out of Europe.

The European Commission slapped Microsoft with a $613 million fine Wednesday for abusively wielding its near monopoly in desktop operating systems and ordered sanctions that go well beyond the company's antitrust settlement with the United States. The company has vowed to appeal.

About 114.5 million Americans, or 39 percent of the population, now use search engines, according to Nielsen NetRatings. Also, businesses spent an estimated $2 billion last year on search-related advertising and some analysts expect the market to triple during the next three years.

Microsoft--which will spend nearly $7 billion this year on overall research and development--hopes to have some of its own search technology development done in the next 12 months, Ballmer said. It will take longer to develop search technology focused on advertising, he told the advertising executives.

The software titan also has said that better search technology will be a big part of the next version of its dominant Windows operating system, which may not be released for a couple years or more.

At the conference, Microsoft also unveiled a study on the effectiveness of online advertising. The company is using the study as the basis for an argument that companies spending about 1 percent of their advertising budget online should consider increasing that to 4 percent or 5 percent because people are spending more time online.

Ballmer said Microsoft spends about 12 percent of its media budget on online advertising, and that he orders his staff to "saturate" that market first and foremost.

"I want to make sure (a user) can't get through ... an online experience without hitting a Microsoft ad," he said.