Can Microsoft's Bing, or Anyone, Seriously Challenge Google?

Microsoft argues that the Yahoo! deal will help change that perception. If the partnership is approved, Microsoft will take over Yahoo!'s search engine — type in "Britney Spears" at Yahoo! and you'll get results provided by Bing. Microsoft points out that search engines get smarter as more people use them; if a search engine notices lots of clicks on Spears' music videos after searching for the pop star, it can begin to highlight those videos in future searches. That's how the Yahoo! deal will help Bing beat Google, Microsoft says. By massively expanding its market share to a potential 26%, Microsoft will get access to a much broader pool of user data, which will in turn make it better at predicting what you want when you search.

Google pooh-poohs this claim. Hal Varian, the company's chief economist, has pointed out that most search engines look at only a small sample of their data in order to improve their results. In other words, Microsoft already has enough data to learn from its users. "It's not the quantity or quality of the ingredients that make a difference. It's the recipes," Varian told CNET. The recipes are Google's proprietary algorithms, which it has slaved over for more than a decade. They're Google's ultimate competitive advantage, and Google believes they'll help it weather the coming assault. (See the best social networking applications.)

Privately, Googlers will tell you that the Bing ads rankle. They describe them as misleading and unfair, painting a picture of Google that doesn't match reality. Maybe, but Microsoft — a company not previously known for its marketing savvy — is taking a page out of a 1960s Procter & Gamble playbook: create a problem consumers don't know they have, then solve it. Bing!

Can Google play defense if Bing starts to move the needle? Google's first instinct has always been to innovate its way out of trouble. But there are a number of features in Google's search engine that most of the public is unaware of. Like how it can give you the local weather and movie times and perform currency conversions with a single search query. It's not in Google's DNA to run confrontational ads, but it's easy to imagine a campaign that shows off all the amazing things your friendly search giant can do. (See 10 ways Twitter will change American business.)

At the moment, Google derives about 97% of its revenue from advertising. Barry Schwartz, CEO of the Web consulting firm RustyBrick and an editor at Search Engine Land, says that some at Google have to be getting a little jittery that the company's entire revenue stream rests on a single product. "They keep downplaying that they're competing with other companies — whenever they pitch something like Android or their new Chrome OS, they say it's just an attempt to get people to use the Web more," Schwartz says. But here's the irony: Google faces a problem very similar to the one plaguing Microsoft, which itself makes the bulk of its money from just two products — Windows and Office. Each company sees the other's business as its own path forward. The rest of us, we're just bystanders.

Tale of the Tape
How Google and Microsoft match up

Eric Schmidt, Google CEO
The Revenue Question: 97% of its revenue is from online ads. Everything else is a hobby
The Search Strategy: Ignore Bing for now and focus on making Google even better
The Perception Problem: Google is losing its halo as it expands into phones and operating systems

Steve Ballmer, Microsoft CEO
The Revenue Question: Windows and Office rule. It needs another big revenue generator
The Search Strategy: Bing is spending $100 million to get you to try its "decision engine"
The Perception Problem: No one ever loved Microsoft. Bing could help soften its tech-demon image

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