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Looking for a Gambit to Win at Google’s Game
There is a lot about the way Microsoft has run its Internet business that Steve Berkowitz wants to change. But he is finding that redirecting such a behemoth is slow going.
“I’m used to being in companies where I am in a rowboat and I stick an oar in the water to change direction,” said Mr. Berkowitz, who ran the Ask Jeeves search engine until Microsoft hired him away in April to run its online services unit. “Now I’m in a cruise ship and I have to call down, ‘Hello, engine room!’ ” he adds with an echo in his voice. “Sometimes the connections to the engine room aren’t there.”
The pressure is on for Mr. Berkowitz to gain control of Microsoft’s online unit, which by most measures has drifted dangerously off course. Over the last year, its online properties have lost users in the United States. The billions of dollars the company has spent building its own search engine have yet to pay off. And amid a booming Internet market, Microsoft’s online unit is losing money.
Google, meanwhile, is growing, prospering, and moving increasingly onto Microsoft’s turf.
Microsoft lost its way, Mr. Berkowitz says, because it became too enamored with software wizardry, like its new three-dimensional map service, and failed to make a search engine people liked to use.
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It is no small task to run an Internet operation that can move as fast, be as popular and make as much money as Google. (That explains why Yahoo announced this week that its chief operating officer was leaving, and why the chief executive of AOL was fired last month.)
But Mr. Berkowitz’s job is made far more complicated because Microsoft is also counting on its Internet operations to breathe new life into its gargantuan but aging Windows and Office franchises.
In a strategy developed largely by Ray Ozzie, who has succeeded Bill Gates as the company’s chief software architect, Microsoft is trying to create online services that are the equivalent of an operating system — a platform that other companies can use to develop their own Web sites using Microsoft’s powerful data centers. It wants to sell advertising that will appear on these independent Web sites and in Microsoft’s own software and video games, as well as its own Web site. And it wants to use its online services to freshen up its own software.
This thinking led Microsoft to create a new brand, Office Live, to incorporate the online extensions of Word, Excel and other business services. And it repackaged its e-mail, instant message, blogging and Web search services under the brand Windows Live, supplanting the venerable if musty MSN.
“There are a billion Internet users in the world, and a lot of those PC users are running Windows,” explained Kevin R. Johnson, who oversees the 20,000-employee division responsible for the Windows operating system as well as the online unit.
Once traditional software is complemented by services delivered online, he said, “it’s a pretty logical thing that people would say, Hey, I’ve got Windows and here’s a set of Windows Live things that extend those services.”
Yet what seems logical at Microsoft seems like a marketing gaffe to most of the advertising and search industry.
Kevin Lee, the chairman of Did-It, a search marketing agency, said neither MSN nor Windows Live would appeal to consumers in a market where Google has become a synonym for Web search. “People don’t see Microsoft as the place you search,” Mr. Lee said. “MSN is not a verb, and neither is Windows Live.”
Mr. Berkowitz does not defend the brand choice he inherited.
“I don’t know if Live is the right name,” he said, saying he had not decided what to do about it. But before he gets around to deciding whether to change the brand, he wants to make Microsoft’s search engine itself more appealing to consumers.
What he did decide was to keep the MSN name afloat, too, as it is well known and its various services have 430 million users around the world. He promoted Joanne K. Bradford, Microsoft’s head of advertising sales, to oversee and revive the MSN portal.
“I have all these users who come to MSN and a very small subset of them use our search,” he said. “My No. 1 strategy is to keep these people from leaking.”
So for now, Mr. Berkowitz has decreed that Microsoft will promote at least two Internet services. MSN, in Mr. Berkowitz’s conception, is a conventional portal with links to programming on various topics that competes with Yahoo and AOL. Windows Live, which uses the Live.com site, is meant to look much like Google, a spare-looking page that can be customized with modules from various services and news feeds.
Reflecting the many conflicting strategies, Microsoft’s Internet unit has been slowed by the same sort of organizational drag that caused the latest upgrade of Windows to fall years behind schedule. And of course, the competitive pace of the Internet is far faster than that of operating systems.
“Microsoft has a really slow cycle speed,” said Rishad Tobaccowala, chief executive of Denuo, a consulting arm of the Publicis Groupe, while its archrival Google moves much more quickly.
At the same time, Microsoft has had duplicated and overlapping products, like multiple ways to share photos, listen to music or search computer files, as well as multiple toolbars for Internet browsers.
“We have three different toolbars that approximately do the same thing,” said Gary Flake, the head of Live Labs, Microsoft’s Internet research unit. “If I have a hard time articulating to a friend of mine which one they should be using, imagine the typical user.”
Even as the company’s leaders tried to rally a charge against Google, the staff was hampered by conflicting priorities and overlapping organizations, employees said. Moreover, last summer, when Microsoft’s stock fell after it disclosed a sharp increase in research spending, directions changed again.
“They had a lot of new initiatives, and people ran fast out of the gate,” said Niall Kennedy, an expert on Internet publishing who joined Microsoft last spring but quickly became disillusioned and quit in August. After the stock fell, he said, “I wasn’t able to hire anybody for my group.”
Mr. Kennedy says this culture is inhospitable for talented engineers.
“Microsoft is no longer the primary place for technical talent,” he said. “If there is a superstar, Google will be on their minds.” (Indeed, Google has set up shop in Kirkland, Wash., six miles from Microsoft’s headquarters in Redmond, specifically to welcome Microsoft refugees.)
Certainly, Microsoft does have some online strengths. Its e-mail service, built on its Hotmail acquisition, is a strong No. 2 to Yahoo. Its instant-messaging service, while well behind AOL and Yahoo in the United States, leads in many countries in Europe and Asia. And its blog service, born as MSN Spaces and now known as Windows Live Spaces, is growing rapidly.
Still, the average MSN and Windows Live user in the United States spends less time on Microsoft’s sites now compared with a year ago, according to comScore MediaMetrix, even as Yahoo and Google increase the engagement of their users.
One reason Microsoft’s use is flat is that it is receiving less promotion from its Internet Explorer browser and from Windows. In recent years, computer makers have started changing the default settings on their browsers to point to Google and Yahoo (which pay big sums for the traffic) instead of MSN. All the Internet companies, meanwhile, are promoting toolbars and other software that help attract traffic.
Now Microsoft is introducing its much anticipated Windows Vista, but under pressure from antitrust regulators, especially in Europe, Vista will hardly promote Windows Live at all. The new version of Internet Explorer, for example, offers users a long list of search engines, with Windows Live listed alphabetically between Lycos and Yahoo.
So with a confused brand and little help from Microsoft’s core business, the biggest challenge for Mr. Berkowitz is to make a search engine that people will choose over Google and Yahoo.
Four years ago, Microsoft embarked on what it called Project Underdog, building its own search engine from scratch. It thought it could match Google in the relevancy of search results — the crucial measure of a search engine — in two years.
So far, all this work has not impressed either consumers or search experts. Danny Sullivan, a longtime search expert who writes the blog SearchEngineLand, said that in relevancy of results, Microsoft ranks behind Google, Yahoo and Ask, in that order, although the gap has narrowed some.
“They have gone from a laughable search engine to a credible search engine,” Mr. Sullivan said. “It is not embarrassing anymore, but they are still a little behind.”
And a test of consumers, by Enquiro, a search engine marketing firm, found that even people who said they preferred to use Microsoft’s search engine actually found what they were looking for faster when they used Google.
Mr. Berkowitz acknowledges that “what Google does better than anyone is getting the basics right.” But he says this advantage will not last.
“Now more and more people are getting the basics right. What Google has forgotten is how to take it to the next level of differentiation.”
This differentiation, he said, is less about extraneous services like the 3-D maps and more about changes to the way basic search results are presented. This strategy helped him build a small but loyal audience at Ask Jeeves, where he introduced several features like the ability to see a preview of Web pages found by the search engine.
“You don’t win in the first 90 percent; it just gets you in the game,” he said. “What matters to people is emotional attachment. And I think that’s the last 10 percent.”
