MICROSOFT SEARCH-- HITTING THE BULLSEYE

Microsoft to Launch Paid Search Technology

Online advertising is fantastic; MSFT is making it better. MSFT has collected data on users such that if a young man who lives in a rich neighborhood does a search for a certain word, he will see a totally different set of advertisements than a middle aged woman from a Spanish speaking neighborhood.

The costs of effective advertising on the internet is going down rapidly. Last quarter, EBAY complained about the costs per ad but continues as the leading buyer of ads. Sophisticated marketing companies are moving traditional media buys to the internet. YHOO has taken a dual approach; anyone can bid for words through the computer interface; big buyers can make their buys after working out details for custom projects with YHOO media account executives.

A fundamental law of economics is that if you offer a better product at a lower price, buyers will beat a path to your door. Because GOOG has such a big percentage of the market, MSFT and YHOO may be able to take market share from them. If so, Google's rate of growth will only be slowed. Total revenue growth will be large. All three firms will garner a substantial amount of new business.

The AOL unit of TWX and others will capture market share. AOL is making progress opening up its system to non-subscribers; a tricky game for AOL. The company must attempt to hold onto subscription customers while attracting non-subscribing customers. The core AOL subscribers are a loyal group with years of using the product. Many loyal subscribers have started using increasing amounts of free Google services. AOL may retain a significant percentage of the loyal folks for a long time but the free services offered by Google will grow rapidly.

Google has a number of features that work much like the new MSFT search. For example, if you and I make identical image searches from our respective computers, we will get a totally different set of images. Google knows much about me. I mention the Myrtle Beach often. Therefore if I search on the word beach, I will see images of Myrtle Beach listed first; whereas, you might see more pictures of Miami Beach or other locations.

MICROSOFT SEARCH IS HITTING THE BULLSEYE; GOOGLE IS TOO!