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Microsoft ready to beat Google

Looking back on Davos this week, The New York Times described Microsoft's Bill Gates and Google's CEO Eric Schmidt as "wary prizefighters entering the ring".

Forget the complaints of Europeans about Asian exchange rates, the most interesting thing about the World Economic Forum at Davos this year was that it kicked off the great battle between Microsoft and Google.

Gates said at one stage he admired the IQ level of Google's designers and admitted Microsoft had got it wrong; Schmidt, said The NY Times, was "obsessed with Mr Gates' every move".

Watching both of their every moves would have been Telstra's Ziggy Switkowski, for reasons I'll explain. By the way, Bill Gates also famously declared at Davos there would be spam-free peace in our time for email - ie in about two years - and this week Microsoft and Yahoo said they were looking into postage stamps for emails as a way of thwarting the spammers.

Millions of tech-heads promptly laid down in front of their computers yesterday, chanting "we shall not be moved" at the very thought of email postage stamps, but the MyDoom virus, not to mention the constant flow of spams from Nigerian importuners and American penis enlargers, have shown that something needs to be done to rescue this part of the internet at least from being overwhelmed by junk. It's estimated that already 50 per cent of the world's email traffic is spam.

The other thing the public internet is now mainly being used for - searching for information, products and services - is doing fine, and will soon be the scene of a momentous fight between Microsoft and Google.

Many see this contest as like the one between Microsoft and Netscape, and in many ways it is. Netscape snuck under Gates' guard with the first mass internet browser and the software giant had to invent its own version and try to catch up. It caught up, went past and destroyed Netscape. It then survived a ferocious anti-trust action from the US Government.

Can Bill Gates do to Google what it did to Netscape? Maybe. Microsoft certainly has distribution power through Windows and Office. Its plan is to integrate a search engine into the Windows operating system and into the various Office applications. Google will have to be on its toes.

But Google is an entirely different animal from Netscape. Apart from anything else it makes money - lots of it. Last year Google's revenue was $1 billion and its profit about $350 million.

That's a 35 per cent profit margin. It's the sort of profit margin that classified newspapers like The Age and The Sydney Morning Herald used to make and which produced the expression: "Rivers of Gold".

The media's new river of gold is internet search and at this stage Google is the only serious rower upon it. A system called Overture, bought last year by Yahoo, is becoming a serious player under Yahoo's wing, but Google is the leader by a mile.

Now it will come under attack from Microsoft, and all internet users and businesses - especially in the media - need to be aware of the impact this competition is likely to have. They will no doubt compete on price, which will squeeze margins. They will also compete with research, producing better and user-friendlier search processes. They will also compete by becoming more local, which is why Ziggy Switkowski would have been paying attention.

Both Google and Overture now have sales teams in Australia offering "pay for performance" (per click) search engine advertising to Australian advertisers. Meanwhile according to online media buyer, emitch, and Roy Morgan Research, internet advertising budgets will rise 50 per cent this year (at the expense of other forms of advertising).

Two weeks ago Telstra's directories business, Sensis, bought "some assets" of the struggling home-grown search engine business LookSmart (basically its sales force and some software). Sensis is building its search engine and is planning a big relaunch of its online operations in six months.

The push of Google, Overture and, soon, Microsoft, towards local searching (so you could, for example, use the internet search function to look for a plumber in your suburb) is a huge threat to Sensis's Yellow Pages operation and therefore to Telstra.

After all, Sensis describes itself as "a primary growth engine for Telstra" but it has taken far too long to get organised online. It's true that localised Google searches require advertisers to have web pages, while Yellow Pages has a database of every Australian business, regardless of whether they have a web page.

But it won't be long before everyone has a web page, or is listed on one, and can be found via Google.

The Sensis plan, as I understand it, is to combine all of its directories into a single giant searchable Australian database, available for keyword searches on a variety of devices - not just large computer screens using the internet.

Sensis's brains trust reckons the future lies with small devices like Blackberry handhelds and mobile phones, with voice searches as well as text.

And Google, they say, is not prepared for that. That's true, but Google, Microsoft and Yahoo are about to pour vast amounts of money into a research prizefight, and going local will be one of the targets. Is Telstra prepared for that?

Source: SMH.com.au

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