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In a bid to tackle the problem of its shrinking share of the Internet search market, Microsoft is taking on Google's ad-supported business model head-on, said CEO Steve Ballmer yesterday at the launch of Vista, the company's new operating system. Now that Microsoft's foot is squarely on the chest of the open-source software market, it is in a position to confront its dwinding share of the U.S. search market, which is now 8% to Google's 51%, according to Nielsen/NetRatings. Microsoft also enjoys nowhere near as substantial a network of advertisers to support the traffic generated by its search engine as does Google. Microsoft will need to invest more heavily in its search technology and advertising system and does not rule out appropriate acquisitions. Ballmer also indicated that Microsoft might try to devise a different kind of search from a Google search, which produces many "false positive" results.

• Sources: Financial Times, Brand Republic, MSNBC
• Related commentary: Microsoft's Profit Drops 28%; Raises Forecasts; Shares Gain 2% After Hours, A Close Look At Microsoft's Earnings, The 20 Most Popular Websites. Conference call transcript: F2Q07 (Qtr End 12/31/06)
• Potentially impacted stocks and ETFs: Microsoft Corp. (NASDAQ:MSFT). Competitors: Google, Inc. (NASDAQ:GOOG). ETFs: streetTRACKS DJ Wilshire Large Cap (ELR), First Trust Dow Jones Internet Index (NYSEARCA:FDN)

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Source: Microsoft's Next Challenge: Internet Search