In early 2005, Microsoft Corp. launched its internally developed Internet search engine with great fanfare, after a large investment. Its goal was to rival Google in the growing and lucrative market.

But two years later, Microsoft has an even smaller slice of the U.S. search market than when it began, based on an analysis of statistics from two major research firms.

Numbers from Nielsen NetRatings show that the overall market has climbed to more than 7 billion queries a month, from about 4 billion when Microsoft launched its homegrown engine, then known as MSN Search. But Microsoft's volume of queries hasn't kept up with that growth -- remaining relatively flat, at 643 million queries in January.

By comparison, the number of queries on Google has doubled during the past two years, to more than 3.8 billion, the Nielsen NetRatings research shows. No. 2 Yahoo's search volume also has expanded along with the growth in the market. Research by comScore Networks shows similar trends.

"If I looked at this, and I were a Microsoft executive, I would definitely be concerned that MSN is not showing nearly the kind of growth that Google and Yahoo are," said Matt Rosoff, an analyst at the independent Directions on Microsoft research firm.

The statistics demonstrate the ongoing struggle that Microsoft faces in Web search. The situation is notable in part because of the ad revenue that hinges on the number of people using a particular search site.

Why hasn't Microsoft done better? Ken Cassar, the chief analyst for Nielsen NetRatings, pointed out that the past two years have brought considerable change for Microsoft's search initiatives, including the rollout of the new engine and the launch of a back-end advertising system.

"I think that all of that change may well have left them with a good search engine, with a good brand and with a good back end, but it has created challenges along the way," Cassar said. "The organization hasn't been able to focus on execution. The organization has had to focus on the build-out at a time when its chief competitors -- and particularly Google -- had a pretty solid basis to start with."

Regarding the brand, Microsoft's search site has morphed during the past two years from "MSN Search" to "Windows Live Search" to the "Live Search," at live.com. At the same time, "Google" has only solidified its place in the popular culture.

Microsoft says it's still bullish on its prospects in the Internet search business. It's also continuing to invest in the sector, announcing plans last week to acquire Medstory Inc., a health care search company.

Microsoft has sought to make improvements in its search site, working on the underlying technology, changing the ways that search results are presented and adding elements such as three-dimensional flyovers for local search results.

"We feel pretty good about the product. We feel pretty good about our plans," Microsoft spokesman Adam Sohn said, explaining that the company is ramping up its marketing efforts, among other things. "We know that it's a hard slog, and it's an uphill climb. But we don't shy away from that kind of stuff. It's super-early days in search."

Ray Ozzie, Microsoft's chief software architect and online services guru, sounded a similar theme at a Goldman Sachs conference last week, explaining that the company wants to go beyond what's possible on search sites today.

"If you look at statistics on search, every week roughly half of people who search use more than one search engine in order to satisfy their needs," Ozzie said. That shows that people are "not completely satisfied with the results, and they're looking for other opportunities to satisfy those requests."

Even so, Microsoft's share of the search business has dropped since it launched its own search technology because of the growth in the market and its own stagnation. Nielsen NetRatings put Microsoft's January market share at 9 percent, down from 13 percent two years earlier.

Google had 54 percent market share in January, and Yahoo had 23 percent.

A gap is also evident in advertising revenue. Microsoft, which still relies on Windows for most of its revenue, reported $462 million in advertising revenue in its Online Services Business last quarter, including display and search ads. Google, whose business is based almost entirely on advertising, reported $3.17 billion in ad revenue for the same period.

The number of search queries isn't the only measure that affects a search provider's advertising revenue. The other big factor is the volume of revenue that the company can realize per query. Microsoft is trying to increase that measure through its new adCenter advertising system, which includes technologies intended to help advertisers target their ads to users more effectively.

In launching its own search technology in 2005, Microsoft weaned itself from the engine that it had been licensing from Yahoo, hoping to put itself in a position to attract new users with its own innovations.

So what's next?

"You have to think that, with the heavy lifting behind it, Microsoft has got to be in a good position to execute, and execute well," Nielsen NetRatings' Cassar said. "But they're competing against two of the strongest companies, between Yahoo and Google, and so Microsoft can't just execute well. Microsoft needs to execute in an extraordinary fashion in order to just keep pace."

Soundoff (Read 7 comments)
What do you think?