On Google's Horizon ... Microsoft

Careful followers of search-engine giant Google surely took note this morning of reports that the company is reiterating an earlier warning that its future growth could fall below expectations. As the BBC News reported, the company "has warned that fiercer competition is set to hit sales growth. The firm, which had a successful share flotation earlier this year, said its rate of growth from the second quarter to the third may not be sustainable."

In a recent filing, Reuters noted, Google said: "Although our revenue growth rate increased in the third quarter of 2004 compared to the second quarter of 2004, our revenue growth rate has generally declined, and we expect it will continue to do so as a result of increasing competition and the inevitable decline in growth rates as our revenues increase to higher levels."
• BBC News Online: Google Warns Sales Growth To Slow
• Reuters: Google Slumps on Revenue Outlook-Filing

So why, after so many press reports stressing Google's strengths, is the search-engine giant predicting possible stormy seas ahead? Today's Wall Street Journal offers some pretty strong clues, and they all have to do with Microsoft Corp.'s clear plans to get involved in online search and advertising placement.

The Journal got the scoop that Microsoft is extending its contract with Yahoo and its Overture Services Inc. unit by a year through June 2006. The deal lets Yahoo place ads "estimated to be valued at hundreds of millions of dollars annually, on Microsoft's MSN online service." But here's the part that must have Google somewhat worried: "Microsoft also is building its own ad-placement technology, which could allow it one day to displace Yahoo, according to people familiar with the matter. The moves highlight the maneuvering and heightened competition in Web search, a field now dominated by Yahoo and Google Inc. Microsoft last week released a test version of its new search-engine technology and said it would phase out its use of Yahoo's technology to provide Web-search results," the Journal explained. The same article later noted that Microsoft's "ad-placement initiative will almost certainly heighten Microsoft's competition with Yahoo and Google. Search-related ads are the fastest-growing segment of online advertising, representing close to $1 billion in the U.S. during the second quarter."

Analysts told the Journal that Microsoft's deal could net about $200 million a year in revenue for Overture, but Microsoft and Yahoo are mum on specifics so far. Reuters picked up on the Journal's piece. "Yahoo and Google have been locked in a battle for customers on both sides of the Atlantic in the lucrative business of selling ad-sponsored search engine listings. Microsoft is now joining the battle, building its own ad-placement technology even as it struck the deal with Yahoo, the Wall Street Journal reported on Thursday." The Journal also gave the bigger picture, which shows Microsoft even giving the advertising industry something to watch carefully: "Microsoft's entry into the search-advertising business also could increase competition for the contracts to place advertisements on other sites. To do that, Microsoft would have to build a system for selling ads, placing them on the right pages, and then billing the advertisers and sharing any commissions."
• The Wall Street Journal: Microsoft Targets Web Ad Business (Subscription required)
• Reuters: Yahoo Extends Microsoft Ad Deal

On the Broadband Front...

In addition to extending its ad deal with Yahoo, Microsoft has been busy partnering with broadband player SBC Communications. SBC is doling out $400 million to the word's largest software company "for software used to deliver TV programming over high-speed data lines. It would be a crucial move into unproven territory for SBC, which like the other regional telephone giants wants to grow by expanding beyond phone and Internet services and into entertainment. ... The deal is also a milestone for Microsoft. The company has spent roughly $20 billion in the last decade trying to break into the television business, but has little to show for that investment, industry analysts said. The 10-year agreement with SBC is Microsoft's first commercial contract to help deliver programming to millions of homes," The New York Times reported.
• The New York Times: SBC In Deal With Microsoft To Provide TV On High-Speed Lines (Registration required)

Yahoo, of course, has been partnered with SBC on broadband for a while, and now the two companies "are expanding their partnership to create a slew of joint Internet, video, wireless and phone services, marking the latest step toward a hybrid business that would transcend the traditional borders among telecom, online and TV companies," the Wall Street Journal reported in a separate piece today. "Under the agreement ... Yahoo over the next two years will begin to serve as a de facto software platform to link SBC services that exist separately today. Customers would be able to tap into a Yahoo portal via a cellphone, PC or TV to do things such as route phone calls, check e-mail, order TV programming and set parental content controls for the Internet or television. Yahoo would provide software for new TV set-top boxes that SBC is developing, as well as for cellphones for Cingular Wireless, the nation's largest cellular company that is 60%-owned by SBC. The first new services are supposed to hit the market Jan. 1."

The Journal piece said the expanded Yahoo-SBC deal should create more competition for cable firms, which will cut prices and offer consumers more choices. But the newspaper also reported that "investors are nervous, uncertain whether the multibillion-dollar investments will pay off. They also dread the prospect of a protracted, all-out battle among giant communications concerns that could leave some of them losers."
• The Wall Street Journal: SBC and Yahoo Expand Alliance To TV, Cellular (Subscription required)

Don't Count Out Those Guys From Dulles

Meanwhile, a CNET article today shows that America Online is hoping to engage in the online ad wars as well. According to the report, "AOL has been making ongoing updates to its service in hopes of retaining existing members and attracting new ones. During the past two years, millions of AOL's dial-up subscribers have fled the service, defecting largely to phone and cable companies that provide faster broadband access. AOL is pushing 'bring your own access,' a service that lets departing members keep their AOL experience for use on top of a broadband connection from another provider. At the same time, the company is trying to migrate many of its exclusive features to the free Web. The idea is to increase AOL's exposure on the Web, which would let it tap into the resurgence in online advertising spending."
• CNET's News.com: Updated AOL Focuses On Security

AOL clearly hopes its security offerings can keep it competitive. The company is unveiling a new security tool today: "Dubbed AOL 9.0 Security, the latest version of America Online's software will give dial-up and high-speed subscribers free McAfee antivirus software and automatic upgrades. Previously, AOL had charged $3.95 a month for upgrades," The Washington Post reported.
• The Washington Post: New AOL Software Focuses On Security (Registration required)

Google Plays Book Worm

Some good news at Google: The company is unveiling plans today to add a specialized search service geared at academia, The New York Times and The Associated Press reported. According to The Times, "Google Scholar, which was scheduled to go online Wednesday evening at scholar.google.com, is a result of the company's collaboration with a number of scientific and academic publishers and is intended as a first stop for researchers looking for scholarly literature like peer-reviewed papers, books, abstracts and technical reports. .. While the great majority of recent scholarly papers and periodicals are indexed on the Web, many have not been easily accessible to the public." The AP reported that the "scholarly search effort continues Google's effort to probe even deeper into content available online and offline. Last month, Google expanded a program that invites publishers to scan their books into the search engine's index, enabling people to peek at the contents online before deciding whether to buy a copy."

And yes, Google plans eventually to sell ads against the new product, The Times piece noted: "The new Google service, which includes a listing of scientific citations as well as ways to find materials at libraries that are not online, will not initially include the text advertisements that are shown on standard pages for Google search results. However, company executives say it is likely that advertisements will eventually accompany search results on Google Scholar. One academic publishing executive, John Sack, director of HighWire Press at Stanford University, said that such advertising could be quite profitable."
• The New York Times: Google Plans New Service For Scientists and Scholars (Registration required)
• The Associated Press via USA Today: Google Introduces New Research Tool (Registration required)

Bill Gates, Spammers' No. 1 Target

You think your e-mail is overloaded with spam? Poor Bill Gates (now that's an oxymoron), the Microsoft chairman has a bit of an in-box problem. He "receives millions of Internet messages a day, said Steve Ballmer, the company's chief executive. 'Bill literally receives 4 million pieces of e-mail per day, most of it spam,' Ballmer said Thursday," the AP reported.
• The Associated Press via The Washington Post: Bill Gates Gets 4 Million E-mails A Day (Registration required)

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