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Microsoft: Yukon ho?

Microsoft reportedly will be building one of the last missing blocks in its online strategy with a search engine.

    Microsoft (MSFT), which seeks to be as big on the Internet as it is in the software business, will be building one of the last missing blocks in its strategy with a search engine, according to published accounts.

    Time magazine is reporting today that the software giant is developing its own search engine, code-named Yukon. The beta will be ready by October with a launch date set for January, the magazine said.

    This news, if true, comes as no surprise to analysts who have been following both Microsoft and the search engine sector. (Microsoft representatives are refusing to comment on the issue.)

    "Rumors have been going around for some time, but the fact that [Yukon] could happen so soon with full launch in January is somewhat surprising," said Andrea Williams, an analyst with Volpe, Brown, and Whelan.

    Microsoft, which has been trying to gain mind and market share in the online world with Microsoft Network, aims to make money off the Web through transactions and advertising.

    Currently, MSN redirects users to other search engines. With its own engine, it not only would get more of its own customers' eyeballs but also leverage its name to draw traffic from the rest of the Web. That's when the real money starts flowing.

    Search engines like Yahoo and Excite use their tremendous popularity with Netizens to sell ads and products.

    A search engine could bring them "overnight ad revenues," said Kate Delhagen, an analyst with Forrester Research. As a company, Microsoft's strategy "is to come up with all the technologies that help people gather information, make informed decisions, and buy stuff over the Internet. On the transaction front, they're developing a lot of content. A critical missing piece is a search component."

    Williams agreed. While the search engine field already is crowded, there's always room for Microsoft. "If there's no room, they'll make room," she added.

    While the move makes sense, William noted Microsoft will have to be careful about how it plays out the business. For one thing, it is unclear how the effort will affect a key component in its online strategy: browser share. Netizens use search engines to learn about and download new software, and if Microsoft cuts too much into competitors' business, it could change how Netizens get its browsers, Williams said.

    "I'd be surprised if Microsoft really wants to enter this market in a way that would pose a considerable threat to Yahoo, Lycos, Excite, and Infoseek, she added.