Rethinking the Microsoft Corp Search Cost Burden
July 31, 2009
I am waiting to give a talk. I have been flipping through hard copy newspapers and clicking around to see what is happening as I cool my heels. Three items caught may attention. Both the New York Times and the Wall Street Journal reported that the Yahoo deal is good for Yahoo. Maybe? What I think is that Microsoft assumed the cost burden of Yahoo’s search operation. Since my analysis of Yahoo’s search costs in 2006, I have gently reminded folks that Yahoo had a growing cost problem and its various management teams could not do much about these costs. So Yahoo focused on other matters and few people brought the focus back on infrastructure, staff, and duplicative search systems.
Now Microsoft has assumed this burden.
I scanned John Gruber’s “Microsoft’s Long, Slow Decline”, and I noted this comment:
Microsoft remains a very profitable company. However, they have never before reported year-over-year declines like this, nor fallen so short of projected earnings. Something is awry.
Dead on. What is missing is thinking about the challenge Microsoft has in search. My thoughts are:
First, Microsoft has to make headway with its $1.2 billion investment in enterprise search. I think the uptake of SharePoint will produce some slam dunk sales. But competitors in the enterprise search sector know that SharePoint is big and fuzzy, and many Microsoft centric companies have here and now problems. I think there is a real possibility for Microsoft to cut the price of Fast ESP or just give it away if the client buys enough CALs for other Microsoft products. What I wonder is, “How will Microsoft deal with the punishing engineering costs a complex content processing and search system imposes during its first six to 18 months in a licensee’s organization. Microsoft partners may know SharePoint but I don’t think many know Fast ESP. Then there is the R&D cost to keep pace with competitors in search, content processing, and the broader field of findability. Toss in business intelligence and you have a heck of a cost anchor.
Second, Bing.com may get access to Yahoo’s Ford F 150 filled with software. But integrating Yahoo technology with Microsoft technology is going to be expensive. There are other costs as well; for example, Microsoft bought Powerset and some legacy technology from Xerox Parc. Layer on the need for backward compatibility and you have another series of cost black holes.
Finally, there are the many different search technologies that Microsoft has deployed and must presumably rationalize. Fast ESP has a better SQL query method than SQL Server. Will customers get both SQL and Fast ESP or will there be more product variants. Regardless of the path forward, there are increased costs.
Now back to Mr. Gruber’s point: a long, slow decline requires innovation and marketing of the highest order. I think the cost burden imposed by search will be difficult for Microsoft to control. Furthermore, I hypothesize:
- Google will become more aggressive in the enterprise sector. Inflicting several dozen wounds may be enough to addle Microsoft and erode its profitability in one or two core product lines
- Google’s share of the Web search market may erode but not overnight’. The Googlers won’t stand still and the deal with Yahoo strikes me as chasing the Google of 2006, not the Google of 2009.
- Of the more than 200 competitors in enterprise search and content processing, I am confident that a half dozen or more will find ways to suck cash from Microsoft’s key accounts because increasingly people want solutions, not erector sets.
In short, Microsoft’s cost burdens come at a difficult time for the company. Microsoft and Yahoo managers have their work cut out for them.
Stephen Arnold, July 31, 2009
AOL May Presage the Future Trajectory of Yahoo
July 30, 2009
Larry Dignan reported that AOL revenue slid 24 percent in its second quarter. With a Googler at the helm, will AOL be able to reverse its slide and then get back on the growth highway? Interesting question, but one that I find more intriguing is, “Does the performance of AOL provide a glimpse of Yahoo’s future?” Yahoo has to come to grips with its new role as a clone of AOL. Yahoo and AOL are both portals. Both companies depend on advertising. New services are rushing past AOL and Yahoo. By the time the companies react, the opportunities have shifted. What about a merger of AOL and Yahoo? Whatever angles Yahoo explores, the company has to make some headway in today’s choppy financial waters. Yahoo has a six pack of search systems. Maybe even a case of search systems. Managing these services and pumping up revenues will go a long way to show me that Yahoo is not an AOL.
Stephen Arnold, July 30, 2009
Yahoo Search Goes Bing, Bing, Bing
July 29, 2009
Short honk: My trusty news reader and Overflight tool are choked with write ups about the Microsoft and Yahoo search deal. The mothership story is the write up “Microsoft, Yahoo Change Search Landscape.” I think that Web search now has room for a strong number three. I don’t think that “search” will change, but advertising is now a a direct face off between Google and Microsoft. My view is that Google will respond with another series of nudges at Microsoft’s enterprise pain points. The guff I heard about Yahoo’s ability to outdo Google in semantic technology is now obviously baloney. My BearStearns’ report on Ramanathan Guha’s programmable search engine has stood in the wind, and the Yahoo chatter has be blown away. Maybe Microsoft can leverage these Yahoo innovation? Yahoo is officially the free America Online clone. America Online is going to have to scramble. None of the write ups I scanned mentioned Yahoo’s email search, Flickr search, and other types of search that Yahoo continues to support. As a result, not all of the Yahoo search costs get resolved in this deal. Yahoo has to demonstrate that it can rationalize its secondary search systems and control those costs. I am not sure that this is going to be an easy task for Yahooligans. in my opinion. Wired’s headline might have more truth than some of the other write ups. The story is “Yahoo Gives Up, turns Search over to Bing.” The “give up” phrase is telling. Lots of excitement, just not exactly the “search landscape”.
Stephen Arnold, July 30, 2009
Great Google Quote
July 2, 2009
Short honk: The Christian Science Monitor snagged a great Google quote from the lips of Eric Schmidt. The quote appeared in “Bing Nothing to Worry about, Yet” here.
Mr. Schmidt allegedly said:
“Google is about getting all the information and organizing it,” he said. “Yahoo has a different strategy. We think ultimately Bing will evolve to a different strategy as well.
Let’s see. If Google gets “all” information, what’s left for the Redmond crowd and the Yahooligans. Logically, the addled goose thinks, nothing.
Stephen Arnold, June 14, 2009
Yahoo and Execution
June 26, 2009
WebProNews reported in “Yahoo Has Execution Problem: Stop Comparing It to Google” that Yahoo has ideas but making them reality is difficult. Mike Sachoff wrote:
She also said that Yahoo did not have a “vision problem” but that it did have an “execution problem,” which it was working on fixing. Bartz repeated her plan to update Yahoo’s main properties, including its homepage and mail service. She said Yahoo was working on allowing users to customize more services to focus on things they are interested in. Yahoo is also evaluating other existing products to “shut down, repair or outsource.”
In my opinion, thinking up some whizzy service is easy. I recall a Yahoo senior executive slapping a cost of $200 million or so on the amount needed to build a search service. That type of thinking is more deeply flawed than the ability to set a goal, execute tasks, and roll out a service. Crazy notions about cost and complexity will lead a company into more severe problems than non delivery. Yahoo is a technology company and its engineering focus is blurry. Add to that the pressure Google brings to bear on the company and toss in a pinch of economic downturn, and you have a recipe for trouble flan.
The comparisons with Google are inevitable. Yahoo followed the AOL portal path and Google did not. Yahoo stagnated in ads; Google did not. Comparisons are going to be the stuff of business school essays for years to come. Yahoo does not have an execution problem. Yahoo has deep technical, strategic, and financial challenges woven into its business model. Just my opinion.
Stephen Arnold, June 27, 2009
Yahoo in a Pickle
June 24, 2009
27/7 Wall Street published an eye opener called “Why Yahoo! Will Never Recover”. Categorical negatives are absolute and I think “may” might make an equally compelling headline. That’s small potatoes. The meat of this write up was:
Yahoo!’s most important strategic blunder is likely to be the refusal of CEO Bartz to form a search partnership with Microsoft quickly after taking the top job. The industry has known for months that Microsoft was about to launch the next generation of its search product. Bartz and many experts believed that Microsoft did not have the product development and engineering expertise to build a highly competitive search engine. This turned out to be an underestimation of Microsoft’s resolve, its willingness to invest great sums of money on risky ventures, and the prowess of its developers.
You must read the rest of the analysis to assess the impact of this review of Yahoo. The one point that I think warranted more beef was Yahoo’s fragmented technical infrastructure. Yahoo has many problems, and the odds of revitalization of the company are long, long indeed.
Stephen Arnold, June 24, 2009
Google, Microsoft, Yahoo Search Death Match
June 15, 2009
Well, not really “death” death. Ihar Mohaniok’s “Blind Search Engines Comparison on Real Queries” caught my attention. The youthful looking M. Mohaniok wrote:
Just in time for Bing launch, one of Microsoft engineers has built a “Blind search” engine, which allows to compare search results from Google, Yahoo! and Bing without branding (and without all helpers, like “universal” aka News/Video/Images, or spelling correction, unfortunately). The concept isn’t new, but I don’t know other public implementations.
Mr. Mohaniok summarized his tests. Bottom-line:
So, total count on difficult queries: 15 for Google, 1 for Yahoo!, 1 for Bing, 1 draw. If we include Yandex for Russian-language queries, it steals one win from Google.
Not a scientific test, but I find the results suggestive.
Stephen Arnold, June 15, 2009
Bing and the Yahooligans
June 14, 2009
I don’t know the Star, and I have no way of knowing if the information in the article is spot on. What I want to do is present what the Star said in the article “Within a Week, Bing Gets More Searches than Yahoo”. The Star made the point that Bing.com has had some success and tallied more searches than Yahoo’s search system. The Star reported:
According to StatCounter, Bing has gained 5.62% of the global search engine market which is a considerable market share that it has grabbed from Google. In the first week of June, Google’s market share declined to 90.45%, while Yahoo had 5.13% and Bing had the rest.
My take is that Yahoo is more vulnerable to Bing.com in the short run. Yahoo’s search system is a side show compared to the dozens of services that Yahoo pushes in my face. When I read mail, I have to click click click click before I see the messages. My tests of Yahoo reveal that third parties who use Yahoo’s search results deliver a more useful slice of the Yahoo’s index. Check out the little known http://www.cluuz.com.
Yahoo, in my opinion, is likely to find its tail feathers singed. Googzilla in the meantime will be “waving” to the crowd.
Stephen Arnold, June 14, 2009
Yahoo Hadoop
June 11, 2009
Short honk: The Yahoo Developer Blog Network published “Announcing the Yahoo Distribution of Hadoop” here. IBM and Yahoo teamed on a version of OmniFind that is free. When I installed the system, I found it had a document limit. Bummer. Will the Hadoop distribution have a limit of some type that’s not in the Apache version? With all of the commercial pressures on Yahoo, what business is the company pursuing: online ads, banner ads, open source software, for fee email, or any of the other services available from the splash page? I’m puzzled. Anyone care to direct my thinking?
Stephen Arnold, June 11, 2009
At Yahoo Is Bartz Topedoing Search or Search Torpedoing Bartz
June 9, 2009
I read a long analysis by Dan Sullivan here called “Bartz Continues Torpedoing Yahoo Search”. I found the information useful because it provides a run down of recent announcements and developments in the ossifying world of Web search. I urge you to read the essay. I found this comment quite suggestive:
Geez, it’s like Bartz handed a gift to Microsoft. Here Microsoft wants to build awareness that there’s an alternative to Google, and Bartz effectively tells people that Yahoo’s out of the game. It was somewhat similar to how Ask screwed up last year … and now still struggles to be counted among the major search engines. Who thought Yahoo would shoot itself the same way?
Several thoughts crossed my mind.
First, the analysis touches only indirectly on the issue that I think is adding basil to Ms. Bartz’s recipe for a Yahoo turnaround—cost. If one can look beyond the posturing, Ms. Bartz has access to the cold hard facts of the cost of search at Yahoo and how those costs match against Yahoo’s actual revenues. My hunch is that the business of search is one that is one rooted in how much money it takes to operate search, feed the warring engineering factions, and manage the set up. Leaving cost out of an analysis means that Yahoo is able to conduct business in a predictable way in terms of operations. I think costs toss predictability out with the burned vegetables.
Second, the mixing of signals is neither unusual nor unexpected. Yahoo is a mini AOL but it has a different series of revenue streams. Dealing with these strong currents is confusing job, just ask any corporate captain who has had to deal with incomplete or flawed financial information and projections. One day the weather is clear; the next Matilda is knocking on the door.
Finally, the search market is ossified. Now I know that there’s considerable hope for the start ups in search like Wolfram Alpha. I know that Microsoft is spending $80 to $100 million to supplant “just Google it” with “just Bing it”, but Google’s market share continues to creep upwards. I think the data that suggest Google has a 60 to 70 percent market share are wide of the mark. Think in terms of 80 percent in the US and 90 percent in some other areas such as northern Europe. A big push in search is going to yield exactly what return? My hunch is that when cost is factored into the equation, Ms. Bartz is doing a pretty good job of keeping investors reasonably stable while she tries to make sense of the Web’s Balkan conflict.
Just my opinion.
Stephen Arnold, June 9, 2009
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