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Google, Meet Microsoft

By Ben Elgin When a pipsqueak technology upstart called Google (GOOG) starting getting attention in the late '90s, few tech heavyweights were excited about Internet search. Online leaders like Yahoo! (YHOO) and Microsoft's MSN (MSFT) dismissed search as a money-losing commodity, with little need for investment.

Today, the competitive landscape couldn't be more changed. After more than a year of quiet work, Microsoft is expected to launch a test version of its first Internet search engine later this week. It follows on the heels of Yahoo, which uncorked its own search technology in February. Suddenly, Google, which has seen its market valuation soar to $45 billion, is embroiled in a three-horse race to dominate the market for searching the Web.

BIG GAP. Despite the deep pockets and hefty reputations of Microsoft and Yahoo, Google will be tough to catch. With its Spartan Web interface and fast-loading pages, it has locked in a loyal base of users. Even as Yahoo launched its own search product early this year, backed by a big branding push, Google steadily gained market share.

The search kingpin handled 49% of U.S. Internet searches in October, up from 41% in March, according to the Internet analytics firm WebSideStory.

Microsoft could find the going even tougher. At the moment, it licenses search technology from competitor Yahoo and handles 14% of U.S. searches, according to WebSideStory. That puts it a distant third behind Google and Yahoo, which owns 24% of the market. Some analysts, such as Morgan Stanley's Mary Meeker, have downplayed Microsoft's threat to Google and Yahoo, saying the Redmond (Wash.) software giant would have to be significantly better to steal away entrenched users.

DESKTOP FRONTIER. Microsoft's strength, however, could come from its near-ubiquitous presence on PC desktops around the world. A hotly pursued realm of search technology involves querying not only the Internet but also reams of files, like old e-mails, digital photos, and PowerPoint presentations, stored on local hard drives.

Google last month announced desktop search software that speedily scans local files. But Google's desktop software requires a sometimes slow download from the Internet, something that Microsoft could eventually avoid if it bundles a so-called universal-search feature with future versions of its Windows operating system.

But Microsoft's supercharged desktop search is probably over a year away, according to analysts. Until it can draw on its strongest assets, Redmond's fledgling search effort could be in for a bumpy ride. Elgin is a correspondent in BusinessWeek's Silicon Valley bureau

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