Microsoft: Yukon ho?

In two weeks, Microsoft (MSFT) plans to announce the launch of its own search engine, intended to draw clicks from the company's popular home page, according to sources.

The engine, code-named Yukon, has been rumored for about a month, but more details are beginning to emerge. The plan, sources said, is to launch a simple Web-based search engine on an advertising-heavy site. There is also the possibility that Yukon will be integrated into the MSN online service, sources added.

The first version won't have too many bells and whistles. But the eventual idea is to create a search engine that won't spit out thousands of possible results but return a few extremely precise ones instead.

Yukon may be indexed and have channels, similar to most others such as Yahoo and Excite. At first, the company will just focus on the search capability and provide lots of space for advertisers.

The beta is expected to be out in November. It was unclear whether the search engine technology was being developed by Microsoft employees or by a third party.

Although the search engine sector appears to be saturated with popular sites, including Yahoo, Excite, and Lycos, Microsoft is the 800-pound gorilla that thinks there's always room for another player in the Internet space.

When asked why Microsoft is launching a search engine, analysts generally answered with another question: "Why not?"

The idea is so simple it's almost obvious: Microsoft gets a lot of traffic at its site, "www.microsoft.com." The idea behind Yukon (although it will be called something else when it launches) will be to drive traffic from that site and probably also from MSN to the search engine.

"It's very Microsoftian," said one source, referring to the software giant's expertise in cross-promoting its own products. "As soon as they do that, they'll start grabbing market share."

For Microsoft, this is another bet in a series of gambles on the Internet. Given the company's cash position, it's not terribly risky but the payoff could be great: lots of advertising and lots of eyeballs.

Microsoft has been trying to get its media properties off training wheels. MSN will be launching a new interface, and Microsoft is continuing to work on its city guide service, Sidewalk. It makes sense to launch other properties that also will generate advertising revenue.

"Microsoft does have a very strong traffic base," said another source. "It's probably looking for other ways to leverage that. Microsoft is placing many bets; this is another bet. If you were Microsoft, you would do the same thing, especially when you saw that Internet traffic and commerce is really beginning to coagulate around America Online, Yahoo, and Excite."

MSN now redirects users to other search engines. It is unclear whether this engine would be incorporated within MSN, but it makes a lot of sense. At the same time, Microsoft plans to continue to move MSN properties out from behind its firewalls. Yukon would be an obvious way to draw traffic from MSN members and nonmembers alike.

Microsoft isn't the only property attempting to make money from search engines. Others, such as America Online, also try to leverage their size and user base to build successful engines. AOL drives its users to its search engine, NetFind, powered by Excite.