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Microsoft (NASDAQ: MSFT) isn't planning to acquire its way into the search engine market. The company's CEO, Steve Ballmer, told Reuters that the company would invest in marketing and hopefully complete a partnership with Yahoo! (NASDAQ: YHOO) that is currently involved in a regulatory review. The goal, of course, is to provide at least meaningful competition to search giant and dominant market player Google (NASDAQ: GOOG).
Expect growth to slow a bit for Microsoft, Ballmer says, as a result of global economic developments. In order to cope with this -- and gear up for a potential battle with Google -- the company has frozen its R&D budget of $9.5 billion, the largest in the industry. With that and a $31.4 billion cash and cash equivalent position, Microsoft certainly has the resources to do battle.
If the Yahoo! deal goes through, Microsoft's Bing search engine will be used to execute Yahoo! queries. Microsoft will pay 88% of the ad revenue generated from these sites. This would get the Redmond giant more traffic to use in fine-tuning Bing to make it a better competitor, and Yahoo! would walk away with a bit more ad cash.
So, Microsoft wants to go it alone, which probably isn't a bad idea. Eroding Google's market share is less a matter of technology at this point than visibility -- the technology need comes later (as Microsoft noted with its interest in building up its database from search and using it to improve Bing). But, it looks like Microsoft is betting on Yahoo!, which hasn't been a great idea since 1997.
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