Ballmer: We fell down on search

Microsoft's CEO says the company's failure to invest more in Internet search technology was a signficant misstep, but adds that it still plans to catch up in the sector.

REDMOND, Wash.--Microsoft's failure to invest more in Internet search technology was a significant misstep for the company, but it is working to catch up, said CEO Steve Ballmer.

"People say that Microsoft does it all, but this is the case where we didn't do it all," Ballmer told an audience of marketing and media executives on Thursday, here at the software giant's fifth annual advertising conference. Then, like an eager football coach pumping up the team for the second half, Ballmer reasserted that Microsoft is still in the game and plans to win.

"You'll see a lot of good competition in the area," he said emphatically, at one point throwing his pen.

Microsoft faces an uphill climb to catch up in one of the Web's hottest arenas. It is working hard to close the gap, but it's so far behind that right now, it gets most of its Web search results from one of its biggest rivals: Yahoo. And this week, European antitrust regulators ordered major changes in the way Microsoft designs its software--a move that could hurt its ability to put new features, including search, in future versions of its Windows operating system.

Ballmer did not comment on the European ruling but did sound an upbeat note for Microsoft's growing impetus in search development. He said the company has hired many top search software developers and plans to be the absolute best in search over time. He also downplayed the mystical reputation of Google's search tool.

"There's no magic here; it takes good, hard work...and hard-core software" to deliver relevant results, he said.

Ballmer would not plot an exact time line for the launch of a new Microsoft search engine, but he said first-generation technology from its development team will likely appear in the next 12 months.

Billion-dollar ad brains
Attendance at its advertising conference more than doubled this year, according to Microsoft, signaling and increased interest on Madison Avenue. MSN's chief revenue officer, Joanne Bradford, characterized the group as one of the largest gatherings of marketing and media executives to consider online advertising, who together represented more than $60 billion in promotion dollars.

The morning session focused on encouraging spending on online advertising and on outlining Microsoft's vision of the future. After years of losses, the company's Internet arm, MSN, reported its first profit in 2003. But Microsoft faces significant challenges, as customers gravitate from dial-up Internet access to broadband.

Bradford said MSN is pushing for 8 percent to 12 percent of every media plan to be spent online by 2005. To usher that along, MSN showed research that indicates that online media is increasingly influencing offline buying habits. The mantra: Online media is "accountable."

Ballmer went further, saying that in 10 years, all media dollars will wind up online, because the separation among PCs, televisions and mobile devices will no longer exist. He predicted that within a few years, people will watch most video via the Internet rather than on a TV set, because it's more organized and packaged there.

The comments worked as a pitch of Microsoft's free streaming-video service, MSN Video, to advertisers. Microsoft recently signed a deal to deliver Major League Baseball games online, and MSN Video is advertising-supported.

The Microsoft CEO went on to describe the migration of people connecting PCs to TVs as an early indication of a future technology and device-connected world, where everything is centered on a home computer.

"At Microsoft, we couldn't be more bullish about the impact of the tech revolution we're in the midst of. That includes the PC revolution...the Internet revolution...the digital revolution...and the wireless revolution," he said.

However, he did not give a time line for the introduction of new technology for targeted search advertising, which, he said, is harder to pin down. Although Ballmer didn't mention it, Paul Ryan, the executive in charge of building ad search technology, left Microsoft in January, after a tenure of only four months.

MSN recently said it would redesign its search results pages this summer, clearly designating commercial search results and playing up its own ads, as opposed to those generated by its partner, Overture Services.

Ballmer brushed off speculation over whether Microsoft plans to buy America Online.

"It's always inappropriate to comment on that kind of a rumor," Ballmer said, responding to a question from the audience. "We do have a good relationship with Time Warner...and we have a good, healthy competition with AOL."

Ballmer was also asked about when the company would let advertisers target consumers by their surfing habits and behaviors. He responded by saying the company will have some interesting new offerings in the next year but that it is "sensitive to thinking through user privacy online."

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