Despite a huge push with its Windows Live and Microsoft Office Live services, Microsoft's online services are "massively underperforming" compared with its online competitors, such as Google and Yahoo!. Heather Bellini, an analyst with UBS Investment Research, notes that Microsoft's online services are failing in every measurable way.
Microsoft's decision to split up its MSN division and to push out most of those online products and services under the new Windows Live umbrella came in the wake of the hiring of Ray Ozzie, who became Microsoft's chief software architect last year. But both the Office Live and Windows Live products and services complement Microsoft's traditional software products, and because Microsoft is afraid of cannibalizing sales of its traditional products, the company's online services have suffered at the hands of competitors that don't have such concerns.
Bellini said that Microsoft's numbers are damning. Since announcing Windows Live and Office Live in late 2005, Microsoft's worldwide search query market share has dropped from 11 percent to 8 percent. Meanwhile, market leader Google has increased its market share from 56 percent to 65 percent. (Although Yahoo!'s market share dropped from 21 percent to 19 percent during the same period, Yahoo! still remains well ahead of Microsoft.) Results for the United States were similar: Microsoft's market share in the United States has dropped from 16 percent to 11 percent, while Google's has jumped from 35 to 47 percent.
Google continues to lead Microsoft in revenues from advertising: In 2006, Google earned $10.5 billion of the $24.5 billion earned worldwide from online advertising, compared with just $5.6 billion for Yahoo! and a woeful $1.6 billion for Microsoft. Both Microsoft's and Yahoo!'s advertising engines underwent major changes over the past year to counter this trend, but it's unclear yet whether these changes will have a positive effect.
Analysts such as Bellini have advised Microsoft to be more aggressive with its online services. One way the company could improve is to worry less about cannibalizing its desktop products. Microsoft should offer Web service versions of its Office applications, for example, and push more of its Windows features to the Web. On the flip side, Microsoft should examine where its Windows Live services can be integrated directly into Windows. Microsoft already pushes these services as being advantages of owning Windows, so there's no reason they can't be included in the box.
In related news, ZDNet blogger Mary Jo Foley recently reported on the "All about Microsoft" blog that Microsoft Corporate Vice President Blake Irving, who currently oversees the Windows Live Platform Group, is resigning. Perhaps the company is getting more aggressive after all.
