Microsoft Throws Down the Search Engine Gauntlet

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Yesterday, Microsoft  (NASDAQ: MSFT  )  published a blog post about how search engine results can help or hinder a website's page results (shocking!). The post wasn't published to enhance the world of search engine optimization, but rather to take another jab at Google (NASDAQ: GOOGL  ) . And we all thought the Scroogled ad campaign was enough.

The post came from Susan Athey, a professor of economics at Stanford University Graduate School of Business and a "long-time" Microsoft consultant. She paired up with Microsoft's Bing team to study how website traffic is affected by where the page ranks on search engine results. Over the course of a few weeks, she and the Bing team played with the algorithms in the U.S. and overseas to test the change to search results. Here's what she found:

  • When a page falls from No. 1 spot to No. 3 spot on the search results page, its traffic plummets about 50%.
  • When a page goes from the No. 1 sport to the No. 10 spot, site traffic goes down by 85%.
  • A site that moves from the No. 5 spot up to the No. 1 spot sees a traffic increase of about 340%.

Source: Microsoft.

This is where it gets interesting. After laying out the data, Athey explains that a search engine company could increase a business' website exposure if that business was promoting the search engine's affiliate site. She writes, "In fact, the manipulation of results to preference a search engine's own products and services is one of four areas of concern identified by competition authorities investigating Google's business practices in Europe, where the world's largest Internet company controls more than 90 percent of the search market."

Oh yes, she did.

Athey is a consultant for Microsoft, posting on the company's site, so it's not surprising she points the finger at the search engine giant. Google is currently being investigated by the European Commission to determine whether it manipulated search results. A similar U.S. investigation by the Federal Trade Commission ended a few months ago, with no rulings issued against Google. If Google didn't respond to the Commission's complaint and was found guilty (an unlikely scenario) it could face fines up to $4 billion.

Searching for more market share
According to a comScore report released last month, Google holds 67% of the explicit core search market share. Microsoft trails in second with just 16.5%, followed by Yahoo! with 12.5%. Search engine advertising is a huge business and Microsoft wants to grab a bigger piece of that pie. Attacking Google has been Microsoft's main strategy, and after this blog post it seems the company is sticking with that plan.

Microsoft's online services division, which includes Bing, typically loses almost half a billion dollars each quarter. But this past quarter the division only lost $289 million and revenues were up almost 11% year over year. That's a good start, but investors need to see more improvement. If Bing can take more market share, then it may be able to increase ad revenue and stop the division from losing more money. To do this, Bing will have to offer a superior product that gets set as the default search on devices. Microsoft won't win the search war against Google overnight, though, and I don't think they'll win it in the courtroom, either.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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