Breaking News

Is Microsoft's vision to compete in the search and reinvent itself as an advertising company no more than an attempt to get back in his familiar position as Top Gun? Should Microsoft, Google and all the others just give up on the search and outsource to Google? This is what Tim O'Reilly argues in a blog post today, and I do not think he could be more wrong.

O'Reilly says Microsoft lost its way after the completion of its long-time goal to see "a computer on every desk and in every home." They are drifting now, he says, and "their only goal seems to be on top of the heap." Attempts to "eat Google's lunch" in the search wars is a symptom of this problem, he argues. Google already claimed a mission to "organize all the world's information," and he says they have already won on the search, "or close enough to make any difference." Microsoft should move on to something new, that it can win.

So his advice to Microsoft: Outsource search to Google, and go solve another problem - building out Internet Operating System.

I will not argue with Tim on whether it is a good idea or not for Microsoft to put more resources into the web services infrastructure and software world. I think it is a good idea. But what I do not understand is why he believes Microsoft must give up their efforts to seek to do so. And I also think that what he suggests - an absolute monopoly on the search - would be a disaster for the Internet.

Innovation in the search has just begun

I simply can not believe that only a little over a decade in the commercial Internet, Tim O'Reilly is willing to say that the search war is over. Has he not read his good friend John Battelle's book, The Search? He is not the only expert out there who think the war is over - Danny Sullivan argued as much on the Gillmor Gang last week. But I simply can not believe that this is all we can expect in terms of search innovation.

There are so many areas of the search, which remain to be conquered. Semantic search. Real language / AI search. The deep web. Media search. Today, looking basically returns web documents. What I want is for search to perform tasks for me. We are no where near the day.

We are just getting started in the search. To believe that the search has reached its pinnacle today is like saying air was perfected before World War I. And if only one company had to operate in aircraft innovation at this point, I doubt we will have jet whisking us around the world today.

Innovation does not occur at a rapid pace without competition. If Google or any company was to search only, we would expect to see little done in search technology or business models, even in the medium and long term.

Sure, the odd start or two will still come together and try to shake things up. But the search is intensive infrastructure - the cost and difficulty of indexing the Internet and building a business in an established market requires resources that most new start-ups can not realistically access. And if the market consolidated further, competing, it will be much harder. There is reason monopolies have broken up by the governments - the market can not generally undo them.

Search Matador and a healthy Internet mutually exclusive

Search is important because it is the starting point for most commercial intentions on the Internet. As I wrote earlier this week, 68% of online purchases begin on a search engine or shopping comparison site. The drive revenue, and a lot of it. Approximately 40%, or $ 16 billion, of $ 40 billion collected in online advertising comes from search. And 80% of the $ 16 billion comes from trade-related searches.

The online advertising space is still growing rapidly and there are estimates that it will increase to $ 80 billion in 2010. If Google continues its dominance of search, they can surpass Microsoft in revenue, and at least in profitability in the next few years. The fact that Microsoft will not be able to count on fat desktop software surpluses forever only makes the problem worse.

Search and advertising is effective mirrors of each other. To say that it is OK for there to be a player in the search is to say that it is ok, if there is a monopoly in advertising.

We have already seen what happens if there is a dominant player in search - little effort put into innovation, and not enough revenue flows to enterprises that add value to the system. The risk of the entire ecosystem is endangered.

For example, the CPC (cost per click) model is wrong, but in Google's advantage because it enables fraud risk ineffective on the advertisers who have no way to verify the level of the search engine. CPA (cost per action) model works much better, but Google has done much more than test them. The current system is great for Google and bad for advertisers. But advertisers have nowhere else to go, since Google has 60 +% of the search market (and perhaps as much as 90% of search revenue), so they can live with it. Microsoft's latest Live Search Cashback initiative shows that competition can and will create more efficient systems.

On the publisher side things are even worse. Google does not share enough revenue with content sites to display their ads. The only thing keeping them even close to honest is the fact that Yahoo and Microsoft will occasionally compete for these partners. Take it away, and Google will go back to keep most of the advertising revenue generated by these sites (their only competition will be other forms of advertising, which generates far less revenue). It is a terrible result, when you look at it from the perspective of the health of the Internet.

Microsoft can not ignore the online advertising market, it's just too big and important. And we have to be behind them in this effort, because if Microsoft and Yahoo lose interest, we will be in a monopoly, and the Internet will suffer. Competition-driven innovation. Competition drives prices down. To wish this away is irresponsible.