How Can Microsoft Overtake Yahoo, Google?

According to BusinessWeek's May 19, 2008 cover story, Microsoft (MSFT) has a chance to parlay its strengths in technology and display advertising, and the growing skepticism about the effectiveness of pay-per-click search advertising, into long-term wins against Yahoo (YHOO) and Google (GOOG).

Given the huge investments that Microsoft and Yahoo must make in their efforts to take market share from Google, I won't buy either company's stock unless one of them shows signs of becoming a Wall Street darling. At the same time, Google, which is still a relatively hot stock, has yet to prove that it can reinvent itself and turn any of its recent acquisitions into winners. The stock's so over extended that it's a toy for day and swing traders, not for long term investors.

Charts for all three companies are here. Of the three stocks, only GOOG has a bullish point and figure chart price objective. Reuters offers data on all three companies here. Based on the BusinessWeek story and my experiences as a web surfer and pay-per-click advertiser, this is how I see the relative strengths of the three companies:

1. Resources for the technological and marketing wars: Microsoft is stronger than Google, but not much, and both are a lot stronger than Yahoo.
2. Technology that will make search and advertising work for advertisers: Microsoft beats Google beats Yahoo.
3. Pay-per-click search advertising: Google has a 75% market share and Yahoo is way ahead of Microsoft.
4. Display advertising technology and market share: Yahoo is a bit ahead of Microsoft, and both are way ahead of Google.
5. Traffic on web sites: With 500 million unique visitors a month, Yahoo is ahead of Google, which beats Microsoft.
6. Content: Yahoo beats Google beats Microsoft.

Microsoft is making a major pitch that pay-per-click advertising is way over rated, and as a former advertiser, I'd have to agree. Pay-per-click fraud is still a big problem on Google and Yahoo, I think. But will display advertising be better? I notice the ads and only click on them accidentally. For small business advertisers, Google is still the best deal. And it's the only place Mac owners can use their favorite computers instead of their WinTel backups.

Full disclosure: I do not have positions in any of the stocks mentioned here.

Comments

[Alex Filonov:]

"Technology that will make search and advertising work for advertisers: Microsoft beats Google beats Yahoo. "

Any evidence? So far Google has proven superior technology, much higher per click rate is the evidence. If MS had better technology, it could charge higher rates, but apparently it can't. Even with lower rates, it can't compete with Google.

2008 May 12 12:21 PM

[Elizabeth:]

I agree with Muddling Investor, MSN's technology has yet to prove to me that it beats Google. I have had more issues with MSN's display rates and lack of transparency than Google many times over. I also find that the average CPC on MSN tends to be higher without the ROI to justify the cost. MSN just doesn't provide yet.

2008 May 13 11:55 AM