Microsoft’s Challenge: Out-Googling Google

It’s safe to say Microsoft has been infected over the past several years with a pretty severe case of “Google envy.” The once indomitable tech company watched helplessly as the center of gravity moved south to Silicon Valley, around both Google and Apple.

The way back might be with a little help from its friends. Microsoft has quietly struck a raft of partnerships in ad technology rather than making one big bet. It struck a deal with AppNexus, in which Microsoft invested $50 million, and has cobbled together a coalition of demand-side platform partners. What’s more, it’s ever closer with Yahoo, building on its search pact recently with a deal to sell inventory on eah other’s sites, along with AOL’s.

Those partnerships are key to Microsoft strategy, said Qi Lu, president of Microsoft’s online services division, speaking at yesterday’s Microsoft Financial Analyst Meeting in Anaheim.

“We’re focused on building infrastructures, developing talents, building what we call enabling capabilities, predictive analytics, experimentation platforms,” said Lu. “A key driver (of growth) are strategic partnerships, especially our partnership with Yahoo. We’ve been materializing the benefits of the strategic goals for this partnership, particularly in search quality. Because when you combine the search tasks together, there’s more signals to work with, just like injecting a lot more oxygen and raising the heartbeat of the search platforms, and we’re making a lot of progress.”
Lu claims that combined traffic is up 30 percent in the U.S. and that Bing with Yahoo is now a “a credible alternative” to consumers and to advertisers.
“We’re also migrating the Yahoo advertisers in North America, on time and that’s a really, really massive undertaking,” said Lu. “We had some struggles, because the undertaking is very complex. We solved some scenarios that are unprecedented scenarios. We made major improvements to our platform, and we have stabilized.”
Despite the industry-wide beating Yahoo has taken for its series of public changes, Lu believes that Microsoft’s partnership with Yahoo and its other partners will help the company  “unlock the economic opportunities in our ad platforms and deliver RPS lift as we go forward.”
The core of Microsoft’s forward-looking strategy online is the company’s ad platforms and its partnership-driven technology stack, according to Lu. He points to the fact that the migration of Yahoo advertisers makes Microsoft’s adCenter the world’s second largest ad platform, with a quarter million advertisers. “There’s a lot of natural adjacency to expand into, for example local mobile commerce,” said Lu.
Lu believes that the way people search online is changing and so Microsoft, with partners such as Yahoo and Facebook, will be able to step into the gap and create an alternative universe of content, search and targeted display that lures with its efficiency and lack of clutter.
“We’ve come from a long ways, we were substantially behind,” said Lu. “Now we’re absolutely fully aware we still have a lot of gaps to close, we always want to remain humble, be intensely focused on building strength, but we do have confidence  we’ll be very, very competitive in our product quality.”
According to Lu, Microsoft’s move from a distant third in a three-way race, holding less than 7 percent market share to its present status as a slowly advancing competitor proves that the company is making changes necessary to gain on Google.
“There are three tidal waves causing deep structural changes,” said Lu, who believes that social media, search and the “appli-fication” or proliferation of apps on the Web is Microsoft’s opening to slowly bleed Google’s industry dominance.
“Going forward, with the foundation that we have, what’s our strategy to win? To break through we cannot just try to out-Google Google; we must change the game, change the game fundamentally,” said Lu.
Lu’s vision, echoed earlier in the day at the conference by Microsoft CEO Steve Ballmer is one of total convergence. It includes Xbox, Skype, and all other components in Microsoft’s toolbox as a part of a multi-screen strategy to bring a Yahoo-AOL-Facebook- Bing connected universe of content and communication into every living room, on every Windows-enabled tablet and phone.
“Our vision is to reorganize the web, to fundamentally make Bing a next-generation cloud gateway,” said Lu, “to fundamentally enable, enrich, assist any human activities.”
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