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Microsoft Exec Describes Search Ad Strategy

Microsoft executive Charles Songhurst answered questions on Microsoft's business strategy at the Jefferies Annual Technology Conference in New York on Tuesday.

Songhurst is Microsoft's general manager of corporate strategy, focusing on mergers and acquisitions and overall company strategy. He provides assistance to Microsoft CEO Steve Ballmer and CFO Chris Liddell.

Many of the questions at the event centered around Microsoft's search advertising business, perhaps because Songhurst helped with Microsoft's recent Yahoo search advertising deal, which is still undergoing regulatory review. Songhurst said that search advertising is a very high-margin business. In contrast, Microsoft isn't likely to focus much on Internet display advertising, he said.

Search advertising has two types, Songhurst said: destination searches and casual searches. Microsoft was trying to address a particular search style when it launched its new Bing platform. Bing is designed to facilitate typical consumer searches, such as medical, product and travel queries.

Microsoft is aiming to secure something like 10 to 20 percent of the search market with Bing, Songhurst said. However, Microsoft currently trails other search engines badly, even after launching Bing in May. According to comScore's July results on worldwide search engine use (PDF), Microsoft held fourth place with 2.9 percent search use, just behind the Baidu Chinese search engine. Google's lead was 67.5 percent, and Yahoo held the No. 2 position with 7.8 percent search use.

So far, Microsoft hasn't pushed Bing internationally, and Songhurst would not say when that would happen.

Microsoft is very focused on the mobile search business, which may become a bigger market than PC desktop search, Songhurst said. In that respect, the company is tailoring Bing to be geo-specific.

Microsoft is also using Bing to increase use of its Silverlight multimedia platform, Songhurst said. For instance, the company just launched Bing visual search, which provides a gallery of images to assist searches. Silverlight needs to be installed in the browser to use that service, he noted.

Songhurst tended to dismiss any competitive threats to Microsoft's operating system market share. Microsoft faces little competition from lower-cost alternatives to Windows, especially if the OS can't match Windows' quality, he said. As for the threat of Apple's OS gaining enterprise market share, he said that "it's very difficult to see how Apple will be compelling to the CIO."

Windows competes both on quality and cost, Songhurst contended. He implied that Windows' cost to PC makers was $50, though he didn't explain which edition of Windows costs that much, nor did he discuss the effect of higher pricing with Windows 7. Microsoft hasn't announced pricing of Windows 7 on netbooks, which are low-cost small form factor laptop-like devices. Songhurst did not explain Microsoft's strategy for maintaining Windows revenues with the rise of netbooks on the market.

As for the economy, Songhurst wasn't optimistic about the United States with its consumer debt and unemployment. Microsoft sees opportunities to employ people outside of the United States, he said. The company is particularly bullish about Asia and Microsoft's China business.

The audio portion of Songhurst's talk is available here.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.

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