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Comment by kenjackson | Hacker News Reader

To really compete in the search game against Google they pretty much have to spend about half the amount that Google does on search, but only get about 11% of the revenue that Google gets.

I think what MS correctly sees is if they can drive up marketshare in search they'll revenue number will grow linearly, but their costs will grow much slower (as they're already largely all in headcount and advertising wise. The big delta would be to get the number of data centers that Google has).

I think its a sound strategy, but they're going to need to more than double their current marketshare before they break even. I think they originally thought that Yahoo would do it, but the Yahoo deal seems to have problems that are hard to pinpoint, at least for an outsider.

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As a strategy it reminds me a lot of trench warfare in the first world war. They've been trying it for years and years without success so it's hard to see what's going to change.

A few things can change:

1) They can the Yahoo partnership working well. In which case they may actually be able to break even with current marketshare. Only MS and Yahoo really know what is broken right now.

2) If Bing continue to grow at this rate they'll be break even in 3 years. Is it worth $7.5B more to have a breakeven search business?

3) Competing on search means that Google has to continue to throw resources at search. MS and Google are both playing the game that they're attacking their competitors strength, so their competitor has to spend a lot resources playing tower defense.

4) Mobile is still largely up for grabs. MS probably realizes that Bing is in a good position to get 30-50% marketshare, especially if WP ever gets 20% marketshare.

While a lot of people like to say, "look at the money they're losing, they should just quit". I honestly don't think they can.

Microsoft's strategy back in 2006 was to become #2 in a search duopoly, with a strong focus on the most lucrative forms of search. They've largely executed on it; spending Yahoo into the ground was a key part of it. And they've also increased their search quality, and with Bing's UX differentiated themselves from Google. Kudos to them.

In the process, though, they've starved the rest of their investments online. Remember when MSN Messenger was #1 in a lot of the world, and so was Hotmail? Remember when Spaces had initial momentum in the photo-sharing/blogging world and they were about to introduce Circles? Remember QnA, which had a shot at combining with algorithmic search to duplicate Naver's approach in South Korea? In order to devote resources to search, MS underinvested in the product in all of these areas. For the last several years Google has been far less resource-constrained than MS so #3 cuts against MS.

> Is it work $7.5B more to have a breakeven search business?

You do the math. What's the ROI from investing $7.5B and getting 0 return?

Apparently though that's not how they're making decisions.

with a strong focus on the most lucrative forms of search

Their revenue hasn't shown they've achieved this. Their search revenue seems about inline with what you'd expect for their marketshare. Not disproportionately higher.

Remember when MSN Messenger was #1 in a lot of the world, and so was Hotmail? Remember when Spaces had initial momentum in the photo-sharing/blogging world and they were about to introduce Circles? Remember QnA, which had a shot at combining with algorithmic search to duplicate Naver's approach in South Korea?

Win Live Messenger ist still #1 in a lot of the world. I Think its #1 worldwide in fact. Hotmail is still top 3 probably (Yahoo, Hotmail, GMail?). But honestly I don't really remember anyone using the other ones. I recall Spaces, but no one was really using it. I donm't recall QnA at all.

I think what MS tried to do was focus. And they decided that search was their focus area in the online space. I don't think it was an unreasonable call. And frankly, I think if I were in charge, I'd do the same thing. And if I were running MS today, I think I'd continue to invest in search -- especially mobile.

Well, starting with a position of strength everywhere but search, they've been losing a billion dollars or more a year. They just had to spend $8.5B buying Skype in a market that Messenger should have owned. Microsoft doesn't even have a social network offering. Google's lead in search has continued to grow.

I said at the time that focusing primarily on search was the wrong call. It sure seems to me like results since then have proven me right.

The software industry does not lend itself well to direct competition. One technology will usually be the winner for a particular set of use-cases and others incompatible or lagging too far behind. If you don't distinguish yourself on use-cases it's a losing battle against the establishment.

A better strategy is to find use-cases that make your competitor obsolete. Microsoft lost some of its significance when Google started producing office software for the web. Google lost some of its significance as the starting point of the web when Facebook became successful. Microsoft could make Google less relevant in search by commoditizing and commercializing Bing's search technology as part of Azure. Google is dependent on it's screen real-estate and has been reluctant to open up APIs to developers. That's where Google is weak and vulnerable, while it's one of Microsoft's core strengths.

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