Microsoft still trying to answer Google's wake-up call

"Google's success very clearly caused an inflection point within our industry and within Microsoft in terms of understanding advertising as an economic engine," Ozzie said Tuesday, speaking to analysts at a Goldman Sachs investor conference in Las Vegas. "It was a wake-up call within Microsoft."

Despite pouring resources into its MSN and Windows Live efforts, Microsoft has struggled to compete broadly in the Web search space against Google. Ozzie said that the company is still working hard there, but is also putting some of its energy into more vertical types of search, which is industry- or topic-specific search. He pointed to this week's acquisition of Medstory, a California-based company that develops health care search technology.

"Just try it," Ozzie intoned. "Go there and type into the search box what ails you. I think you'll actually be quite surprised--quite pleased with the results."

Ozzie said Medstory's technology is first being added to MSN Health, but that it will ultimately be included within Microsoft's broader Live search engine.

Vertical search pages are just one of the possibilities, Ozzie said, adding that advertisers are happy to look beyond Google if there are simple and effective ways of doing so. "Advertisers, they just want to reach their audiences," he said.

Beyond advertising, the second major influence of Google on Microsoft has been to point to the importance of being able to offer software-based services, he noted. Ozzie made several references to work Microsoft is doing behind the scenes to build a companywide services engine. All of its business units will be able to tap into the engine to add services components to their products, and those tools eventually will be available outside Redmond as well.

"We've been building that services platform," Ozzie said. "The economies of scale that we gain internally are going to be available to third-party developers and enterprises."

Microsoft first announced its Live online services effort at a November 2005 event in San Francisco with Chairman Bill Gates and Ozzie. Many of the initial efforts were simply existing MSN products rebranded with a Windows Live name. Recently, Microsoft has been putting some Windows Live products back under the MSN brand, including Windows Live Shopping and a Wi-Fi hot spot finder.

Microsoft has also since announced that it is pulling back from plans to drop the Hotmail name from its Free Web mail service. In that case, Microsoft is going for a hybrid name, Windows Live Hotmail.

Pressed about what all of these new services capabilities might cost, Ozzie deferred to Microsoft CEO Steve Ballmer and Chief Financial Officer Chris Liddell. However, he indicated that many of the costs are not one-time expenses.

"There is a level of data center and infrastructure that we continue to need to build," he said. "This is just going to be a continuous investment."