Microsoft Has ‘Long Way to Go’ in Search: Exec

Microsoft might dominate the software landscape, but when it comes to search and online media, the company still has its work cut out for it.

That was the sober assessment of Yusuf Mehdi, the company executive responsible for building market share for both search and Microsoft’s (NASDAQ: MSFT) MSN.

“We have a very long way to go in search, [where we’re] outgunned by Google’s scale advantage,” said Mehdi, who holds the title of senior vice president for Microsoft’s online audience business.

Mehdi’s comments during a talk this week at the Credit Suisse 2009 Annual Technology Conference in Scottsdale, Az. Not surprisingly, investors’ questions revolved around Microsoft’s Bing search technology and the company’s deal with Yahoo (NASDAQ: YHOO).

Still, there was good news to share: Market share for Bing has increased slowly but steadily since it launched six months ago.

“We’ve grown share every month,” Mehdi said.

Web analytics firm comScore’s (NASDAQ: SCOR) latest search engine statistics reflect that. For U.S. searches in October — the most recent month the firm has tracked — Bing reached 9.9 percent share. That’s still puny compared to Google’s share in October of 65.4 percent, though.

However, Microsoft claims to be pleased with the results so far.

“We are ahead of our expectations for this point in time,” Mehdi said. Additionally, the company is not just pulling in one-time Bing users, but growing “heavy users” who rely on more than one search engine, and who search often, he added.

The Yahoo deal, which will have Bing serving as the underlying search engine on Yahoo sites in exchange for a share of the advertising revenues, is still waiting for regulatory approval. Microsoft officials have said several times recently that they expect that approval to come in early 2010.

Once that is achieved, the companies can move into execution on the ten-year agreement. One change that will necessitate is the eventual migration from two different advertising systems to one. And that will take even more time, Mehdi indicated.

“We will migrate to one ad system over the next 12 to 18 months after we’re done with the regulatory period,” he said.

The deal will eventually yield a single stronger competitor to Google than either Yahoo or Microsoft alone, he added.

“I think, by coming together, we’re going to be a strong No. 2 by getting to 30 percent share.”

Based on comScore’s October statistics, if the union took place today, the deal would yield Bing and Yahoo a 27.9 percent combined share.

There are plenty of opportunities for problems, though.

“The biggest risk is in migrating advertisers — it’s important that as you close one system and open another that you make it happen smoothly,” Mehdi said.

Additionally, none of this will be inexpensive. “We’re going to spend $100 million to $200 million in year one,” he said.

Mehdi’s boss, Microsoft CEO Steve Ballmer, has said he is comfortable with putting his money where his search is. Last summer, Ballmer said he is willing to spend between 5 percent and 10 percent of Microsoft’s operating income for the next five years to make its search business successful.

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