Microsoft limbers up to fight for online future

The software giant's chief, Steve Ballmer, has a mission — to catch up with Google and move its business to the internet.

Steve Ballmer, Microsoft chief

Dominic Rushe in Redmond, Washington 

MICROSOFT has an impressive collection of modern photography in the lobby of its conference centre in Redmond, Washington. Among the artists is David Maisel whose aerial photographs of Los Angeles give a disturbing, apocalyptic, bird’s eye view of the sprawling metropolis. 

Black and white, teeming with a network of crazy roads, it’s hard to imagine how anyone could navigate the chaos. It seems an oddly apt choice of artwork for the world’s biggest software company. 

Microsoft is huge. Valued at close to $233 billion (£117 billion) it counts Windows, XBox, Hotmail and a host of other services among its products. Its sales of $60 billion are growing at 18% a year, a rate it has achieved for the past six years. Windows is published in 96 different languages and runs on 90% of the world’s computers. But for all its size and many triumphs, as analysts filed into the conference centre for their annual meeting with Microsoft’s top executives last week, what they saw was an empire in trouble. 

Co-founder Bill Gates retired this year, leaving his friend and successor Steve Ballmer with some big problems. The software industry is moving online — offering services over the internet and paying for them with ads or renting them out. It’s a trend known as “cloud computing” — all those services now float somewhere above our heads and are not trapped inside a PC. The trend is clearly a cloud — over Ballmer’s head.

Microsoft is still selling most of its software in boxes, just like Procter & Gamble sells soap. Arch enemy Google has been beefing up its online services and is after Microsoft’s crucial business clients. Google dominates online searching — the entry point to the web — in the way Microsoft once dominated the PC. 

Despite spending billions to catch up, Microsoft is still a poor third in online search. The on-off, on-off merger with Yahoo hasn’t helped Ballmer’s mood. He had made the case that Yahoo was critical to the future of Microsoft’s saggy online services. Now he has to make the case that it’s not. 

Then there’s Vista, the latest incarnation of Microsoft’s world-beating Windows computer-operating system. Last year’s rollout was a bug-ridden disaster. And let’s not forget the rise and rise of Apple. Apple’s share of the computer market is tiny compared with Microsoft but it is growing fast. People queue through the night to get hold of new Apple gear. They don’t do that for Microsoft. 

Since November last year Microsoft’s shares have been sliding hard. The company lost about $90 billion in market value this year as it danced with Yahoo. The day before the conference, Kevin Johnson, the executive in charge of the division that houses its online business and a man tipped as a potential successor to Ballmer, quit to head Juniper Networks, a Silicon Valley hardware firm. Nice timing. 

When Ballmer took to the conference stage, no-one clapped. But by the end of the day few could doubt that this is a man and a company with a mission. 

“What’s the fundamental message here? There is a technology shift. You could say shift means risk — I say risk means opportunity,” said Ballmer. “The real question is not what’s going to happen but who’s going to win and how it’s going to happen.” 

During the presentations, the audience was asked to rank the speakers on what sort of job they did. Microsoft weren’t giving out the score cards but a straw poll gave Ballmer a nine. When the going gets tough, the tough get going. And they don’t get a lot tougher than Ballmer. 

Before Ballmer’s big show one member of the audience was having dinner with some former Microsoft employees and local venture capitalists in Redmond. There are a lot of very rich, retired Microsoft employees in the area. Many are still sitting on piles of Microsoft shares. “I was surprised by how negative they were,” she said. “Apparently it's never been easier to hire people away from Microsoft.” She said local opinion was that Google was now the clear first choice for the brightest talents coming out of the area’s prestigious universities. Some of the shareholders were suggesting Microsoft had just got too big and should be broken up.

But Ballmer sees Microsoft’s size as one of its key advantages. “We’re the only player in this market that’s building the future based on the present,” he said. The firm is taking its software online, offering more and more services to businesses and consumers over the net. 

Microsoft is often keen to point out that it competes with Google in just 6% of its business. But there is no doubt that Ballmer sees Microsoft’s future online — and the two firms are set to fight it out over more and more of Microsoft’s business. 

“Everything you read, everything you watch, everything you want to communicate — all those experiences are going to happen over the internet. Television — the internet. Magazines — the internet. Phone calls — the internet. Video conferencing — the internet. Advertising, shopping — the internet, the internet, the internet. The size and magnitude of that is really unbelievable. We are talking about in aggregate one of the largest parts of the world’s economy,” he said. A trillion-dollar market, Ballmer calculated. “It’s a huge transformation that is as much a software opportunity as anything else.” 

For now the gateway to that world is online searching and Google is the gatekeeper. To that end Ballmer was prepared to spend in excess of $44 billion buying Yahoo, the second-biggest player in the market. Microsoft has been working hard to improve its own search programs but as a distant third to Google and Yahoo it lacks the audience to pick up advertisers and users. Yahoo would have delivered that audience, though the focus on the talks obviously annoys Ballmer. “I’ll talk about Yahoo in a moment bleh bleh bleh,” he said. He’s fond of dismissing subjects with blehs and blahs.

Unfortunately for Ballmer, they don’t make the problem go away and despite stating that a deal was now very unlikely he couldn’t resist leaving the door open. “There is nothing under discussion. Yahoo for us was always a tactic not a strategy,” he said. “We can move on. Does that mean nobody will ever talk to anybody again? I suspect the answer to that is no. It’s a long time and a big world." 

Yahoo gave billionaire investor Carl Icahn three seats on its board last week to end a proxy fight before its August 1 annual meeting. Icahn had pressed to replace the Yahoo board and make the sale to Microsoft. For now, Icahn appears to have made peace with Yahoo. Plan B for Microsoft is to spend hundreds of millions of dollars to build up its own services. The company has spent about $9 billion in the past two-and-a-half years building its internet business, according to Directions on Microsoft, a research firm in Kirkland, Washington, and to little good effect so far. 

Directions analyst Matt Rosoff said he had some sympathy with Ballmer. The Yahoo deal was a bad idea in the first place, he said, though the intention was good. “Microsoft’s strategy is valid — it’s always been an execution problem.” Microsoft had too many brands. “What’s the home page? It’s been scattered. Maybe if the company focused on fewer things it could do better.” 

Online searching is not the only area where Microsoft’s diverse approach is causing problems. Another, far smaller, company cast a big shadow over last week’s meeting: Apple. Apple has long cast itself as the antidote to Microsoft. In its “Get a Mac” ads, Apple is the cool dude of computing and Microsoft’s PC man is the nerdiest guy in the IT department. Despite some of the ads backfiring, with research showing viewers felt more sympathy for the suffering straight man than the hip Apple dude, the damage has been done. 

While Apple computers can run Microsoft’s programs, they come with their own operating system and offer the only big rival to Windows. Analysts at Gartner estimate Apple had 8.5% of the American computer market in the second quarter of this year. Small, but up from 5.6% for the same time last year. Gartner is predicting that Apple will double its market share in computers in America and western Europe by 2011. 

Then there are all those iPhones — mobile computing devices just waiting for computer services to rain down from the clouds — and the buzz around what Apple will do next. Buzz that is sorely lacking at Microsoft. 

Microsoft dwarfs Apple in computing and in the number of mobiles that carry its software. At the meeting its executives were keen to show off some very whizzy technology they have developed for handheld devices. In the not-too-distant future, phones linked to the web will come loaded with technology that can recognise buildings, tell you what’s on the menu at a restaurant, even how many seats are available. 

No doubt Apple, too, will be working on similar technology. No points for guessing who will make it look cooler. It’s already happened in another area. 

Microsoft has been working on touch-screen technology for years. In a side room at the meeting the company was demonstrating Microsoft Surface — a touch-screen table they claim is so robust that people have danced on the one in the Rio hotel in Las Vegas. But it’s still Apple not Microsoft that gets the accolades for being the first to take the technology mainstream. 

In a memo to the troops ahead of the analysts’ meeting, Ballmer wrote: “In the competition between PCs and Macs, we outsell Apple 30 to 1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience.” 

Off the record, Microsoft executives are gearing up for a tougher fight with “the fruit company”, as one disparagingly called it. A new advertising campaign is in the works and early signs are that it will cast Apple as a niche player — the indie kid, cool but awkward to hang around with. 

As Microsoft enters an awkward middle age, it’s starting to throw its weight around again. Now Ballmer has to convince the world he knows what to do with all that muscle.

From The Sunday Times

The biggest search engine on the Web

Cuil (www.cuil.com) claims to have indexed 120 billion Web pages, three times more than any other search engine. In its blog on Friday, Google noted that it had discovered one trillion unique Web pages on the Internet, but did not give an updated number on how many of those pages it has indexed. Google stated that it doesn’t index all the Web links because they either point to similar content or would diminish the quality of its search results in some other way. A search index’s scope is important because content can’t be found unless it’s stored in a database.
The new Cuil search engine provides organized and relevant results based on Web page content analysis. The search engine goes beyond today’s search techniques of link analysis and traffic ranking, to analyze the context of each page and the concepts behind each query. It then organizes similar search results into groups and sorts them by category. Cuil gives users a richer display of results and offers organizing features, such as tabs to clarify subjects, images to identify topics and search refining suggestions to help guide users to the results they seek.
“The Web continues to grow at a fantastic rate and other search engines are unable to keep up with it,” said Tom Costello, CEO and co-founder of Cuil. “Our significant breakthroughs in search technology have enabled us to index much more of the Internet, placing nearly the entire Web at the fingertips of every user. In addition, Cuil presents searchers with content-based results, not just popular ones, providing different and more insightful answers that illustrate the vastness and the variety of the Web.”
Cuil’s technology was developed by professionals with extensive history in search. The company is led by husband-and-wife team Tom Costello and Anna Patterson. Costello researched and developed search engines at Stanford University and IBM. Patterson is best known for her work at Google. The last search engine technology she created was bought by Google in 2004 to upgrade its own offering. While at Google, Patterson was the architect of the company’s large search index and led a Web page ranking team.
Costello and Patterson believed that search technology could be improved. Since 2006, when Patterson left Google, the couple have dedicated themselves to building a more comprehensive search engine. Together with Russell Power, Patterson’s colleague from Google, they founded Cuil to give users the opportunity to explore the Internet more fully, discover its true potential — and of course enable Cuil to earn big bucks. “Since we met at Stanford, Tom and I have shared a vision of the ideal search engine,” said Patterson, president and COO of Cuil. “Our team approaches search differently. By leveraging our expertise in search architecture and relevance methods, we’ve built a more efficient yet richer search engine from the ground up. The Internet has grown and we think it’s time search did too.”
Unlike Google, Cuil’s methods guarantee online privacy for searchers. Since the search engine ranks pages based on content instead of number of clicks, personal data collection is unnecessary, so personal search history is always private. Cuil’s features include:
• Biggest Internet search engine — Cuil has indexed 120 billion Web pages, three times more than any other search engine.
• Organized results — Cuil’s magazine-style layout separates results by subject and allows further search by concept or category.
• Different results — Cuil ranks results by the content on each page, not its popularity.
Cuil is backed by $33 million in venture capital. It will need every penny and more if it is to scale rapidly enough to be a serious contender to Google. The search engine was clearly having teething problems yesterday. Several times when Arab News attempted to try the online application, the following message appeared instead:
“We’ll be back soon ... Due to overwhelming interest, our Cuil servers are running a bit hot right now. The search engine is momentarily unavailable as we add more capacity. Thanks for your patience.”
When it comes to search, nobody waits. They just click to Google.