How Microsoft Got Bing, And Why It Is Failing to Matter
August 31st, 2009
Daniel Eran Dilger
After having proven itself unable to compete in web search and advertising, Microsoft has acquired technology from a company with management problems and has launched a wildly hailed attempt to catch up to Google using a dishonest campaign targeting the government. Of course, this isn’t anything new, simply a repeat performance of the historical development of Windows NT. The only difference this time around is that Microsoft’s monopoly is no longer able to exert much leverage against legitimate competitors in the market, providing little hope for Bing. Here’s why.
Windows Search: A Third Rate Brand for Third Rate Search.
If you’ve only ever been exposed to coverage of Microsoft’s recent historically revised press releases, you might get the impression that Microsoft only recently set its sights on destroying Google and has been ratcheting up its efforts to take on the market leader, culminating in its latest development, Bing, which has managed to grab new ground in web search and ads.
That’s almost entirely inaccurate. Microsoft’s web efforts predate the rise of Google, although Bill Gate’s company largely only ever attempted to put its brand on the technology of other companies. 1998′s MSN Search was just a Windows-bundled version of Inktomi’s search, which later added results from Looksmart and AltaVista. It wasn’t very popular because it didn’t offer the search results Google could.
Very little changed until Microsoft renamed its web search services to Windows Live in an effort to hitch its distantly third place search engine brand to the coattails of Windows Vista, something that in retrospect wasn’t very useful.
That All Happened Before.
Up to the last several years, Microsoft’s experiences in web ads and search have been a lot like its experiences in operating systems prior to Windows NT: Microsoft was only putting its name on somebody else’s technology and pushing it via monopoly leverage rather than actually working to compete in the market against other products with its own creation.
From 1975 to 1990, Microsoft resold DRI’s CP/M operating system (although “resold” suggests that Microsoft bought it from DRI rather than just ripping the company off) as MS-DOS and then similarly resold a clone of Apple’s Mac desktop environment as Windows.
The company also resold AT&T’s Unix under the brand Xenix, although it actually licensed the code from AT&T. Xenix was among Microsoft’s least successful products, indicating that crime does indeed pay, as long as you can avoid prosecution or delay lawsuits until their impact is largely irrelevant.
In the early 90s, Microsoft’s growth in the PC space began to position it against real operating systems: Unix distributions such as NeXTSTEP and Sun Solaris were now being sold to PC users, and Microsoft wanted to sell something that could rival those operating systems in the server space, a market dominated by AT&T and BSD Unix and Digital’s VMS alternative.
Microsoft hired a team led by Dave Cutler, which had been working at Digital to create the next generation of VMS, Digital’s competitor to AT&T’s Unix. The result was eventually released as Windows NT. Microsoft aggressively sold the new operating system to government agencies under the pretense that it supplied a real Unix subsystem for backward compatibility as most contracts required.
Once Microsoft got its foot in the door, it was able to convince the government to spend massive amounts of money to port its existing systems from Unix servers that worked to Windows NT servers that didn’t. Tasks that could be performed by a large central server now required a “server farm” of racks upon racks of PC servers each running a single server program on top of NT, because Microsoft’s new operating system simply couldn’t manage the uptime, stability or capacity of previous Unix servers.
Microsoft itself purchased significantly large server businesses and struggled to transition them to Windows NT, including HoTMaiL and WebTV, both of which were originally built using Sun servers running Unix. This required a massive expansion in hardware and resulted in less efficient, more expensive operations. WebTV eventually failed completely, while Microsoft continued to pour millions of dollars into Hotmail as part of its desperate web strategy.
Trading Good for Bad in Servers.
Behind the scenes, Microsoft also leveraged its monopoly position in PCs in the late 90s to influence HP and Digital/Compaq to drop their own high performance server processor architectures (PA-RISC and Alpha, respectively) and throw their weight behind Intel’s new Itanium. Once Itanium failed, Microsoft was left with the home field advantage on Intel PCs with Windows NT/2000.
With the future of HP’s HP-UX and Compaq’s DigitalUnix/Tru64 operating systems now anchored to the sinking Itanium and their own corresponding high performance hardware terminated, the two merged to form a company left primarily with just selling Windows PCs.
That conglomeration of monoculture also hampered the prospects of other digital species of Unix in the server market, including Sun’s Solaris running on Sparc processors and IBM’s AIX and Linux running on PowerPC chips. Microsoft had brought the Windows monopoly it enjoyed in the desktop PC market in the 90s into the server market for what it hoped would be similarly competition-free sales in the big iron server market in the 2000s.
There was a sticking point though: Linux had developed throughout the 90s and was blossoming into a powerful force of its own, thanks to support from IBM, Sun, Oracle, and other big enterprise vendors. Microsoft attempted to divert the settlement money it eventually paid out to DRI (for stealing its software and repressing its competitive DOS product) into a pool of lawyers at SCO that it then pointed directly at Linux. This effort to neutralize competition in the server space eventually failed, but not before Windows Enthusiasts all got on board trying to drum up support for Microsoft and SCO while attacking Linux.
Overture, Google, and Yahoo.
What does this all have to do with Microsoft’s search efforts? Once again, Microsoft has been sitting in a market for over a decade without offering anything unique. From 1996 to 2006 the company’s search strategy has largely been to put its brand on other search engines in the hope that its monopoly power in the PC and server businesses would simply cause all revenues to flow in its direction.
Instead, Microsoft has increasingly fallen behind in search, with Yahoo and then Google outpacing it. Google primarily invented better search. It then put into place the money maker: paid search placement. Google didn’t invent this; it was the product of Overture, originally GoTo.com. Using paid search placement, Overture was originally the only company effectively making money in search. However, in 2003 Overture launched itself into the adware business in a partnership with Claria, the source of the notorious Gator malware, blighting its reputation. Oddly enough, Microsoft later entered into talks to acquire Claria’s malware operations in 2005.
Yahoo subsequently bought Overture and wrapped its tentacles of failure around it. Yahoo’s executives also settled Overture’s “you stole our paid-search” suit against Google, which resulted in a bonanza of 2.7 million shares of Google being awarded to Yahoo. This effectively encouraged Yahoo to sit back and let Google earn money for it, as Google’s success directly benefitted Yahoo. The biggest loser was Microsoft, which saw its ad and search business trail off into irrelevance as Google innovated and Yahoo rode its coattails.
Success through Failure, and then Failure.
Microsoft’s Windows monopoly threatened to help it foist its third place, third rate Windows Live search services upon consumers with the rollout of Vista, destroying any prospect of competition in the search business. That kept Google on the defensive up until Vista’s launch collapsed, resulting in Microsoft falling even further behind in both market share and reputation.
Meanwhile, Yahoo’s management got so bad that it effectively kicked off an employee revolt. Rather than reinvesting in provenly-profitable search, Yahoo’s management chased guaranteed failure in the media business. The search brains at Yahoo, including the former employees of Overture, began a mass migration to other companies, effectively firing their management. The primary benefactor was Microsoft, which hired up as many disgruntled Yahoo people as it could. The result: Yahoo’s talent is now at Microsoft, much the same way as Microsoft acquired Digital’s operating system talent two decades ago.
The difference between Bing (a product of the Yahoo diaspora) and Windows NT (Digital’s former crown jewels) is that with Bing, Microsoft has only acquired a few percentage points of Yahoo’s remaining, ailing search business. Google continues to plough ahead with its own efforts, cementing its dominating lead while it takes on Microsoft’s own core businesses with products that challenge Office, Windows Mobile, and Windows itself with the newly announced Chrome OS.
Like operating systems, the search business is a fantastically expensive game to play in, requiring massive investments in new technology. Google has been collecting the lion’s share of ad search revenue, financing its investments in new technology including Caffeine. Microsoft has been forced to pay for search research and development out of its monopoly profits, something that is becoming increasingly difficult to do as the global PC market plateaus, as PCs shift to ever cheaper price points, and as Google steps up its game against Office and Windows.
Bing: Stick a Fork In It.
After so much isolation from real competition, Microsoft is poorly prepared to market Bing against a market leader. It has attempted to tie Bing branding to all of its other products, but as Office and Windows sag in their influence, Microsoft is left with tying Bing into its sadly performing Zune and Windows Mobile devices.
Bing also has little to no presence on Apple’s premium, high visibility platforms of the iPhone and the Mac. Microsoft is conflicted about doing anything that might support Apple, which sells platforms that make Microsoft’s own software look bad. Microsoft has meekly rolled out a toolkit to allow iPhone developers to incorporate Bing search into their apps, but Apple has already delegated its core search services in Safari and the iPhone to Google, leaving any third party use of Bing nearly irrelevant even if it were to take off among Cocoa developers for some reason.
Microsoft’s expensive marketing campaign has been bumping the Bing brand into headlines for the last couple months, but that sort of investment is short lived and impossible to sustain without an ongoing revenue stream. The problem is, it’s far easier for Google to maintain its dominance in search than it is for Microsoft to earn it back.
Just ask Apple, which has spent ten years clawing back into leadership of the graphical desktop. Compared to Bing however, Apple’s task was easier because it always made money selling Macs. The search business requires just as much investment and provides far less return per user, making a minority market share position like Microsoft’s a money pit.
Microsoft’s position as a distantly trailing minority player in search is similar to its loser position in media downloads against iTunes, its cash hemorrhaging position in video games, and its profitless business of trying to sell Windows Mobile in a market dominated by free alternatives, from Android to Symbian to Linux. The company seems committed to trying to win in every market where little profit potential exists, while failing dramatically in markets where other companies have established profitability, such as Apple’s iPod and iPhone business, or of course, Google’s ad search.
An Open Failure.
Microsoft’s failure in search is notable because search is also an example of a business ill-served by open software. Just like media compression codecs, the search business is one where massive investment is required with limited potential for short term payback. Both are examples of basic research hogs, just like battery technology or operating system and human user interface development. The open community has offered some help but certainly no leadership in these fields.
These are all areas that big, dominate companies like Google (in search), Apple (in media , OS, and UI), IBM, Xerox, AT&T, and other historical think tank corporate investors have excelled at exploring and advancing. Why can’t Microsoft? Further, why are companies in general increasingly shunning big investment in the next new thing to instead fish up short term profits through copy-cat efforts?
Liberal spending on basic research and development has been consistently cut off at the knees in an environment which has put rapid profiteering and the emphasis on immediate payback for investors as the pinnacle of human achievement. During the conservative 2000s, Microsoft continued to scrape easy profits from its monopoly position as companies like Google and Apple worked independently on the next new things.
Now, ill equipped to catch up, Microsoft is using its well equipped lobbyists to attack Google using government interference in lieu of competing against it in the marketplace. Ten years ago, Microsoft was defending its own monopoly to the government, although Microsoft’s monopoly was not legitimately won in the market as Google’s, but was instead massed together through shady business practices and competition suppression.
The question this time around will be: has the “center right” American government become saturated enough with corporate socialism for the rich that the very success of liberal spending on basic research will be attacked and handed over to loser parties such as Microsoft in new bailouts that reward failure and punish legitimate success, after twenty years of doing the opposite, ignoring Microsoft’s monopolistic lock on markets while rewarding conservative corporate profiteering with more government grants and overseas political support?
Because that would be devastating to US recovery.