SEATTLE - Without the influx of Web traffic that Microsoft bet would quickly follow a Yahoo buyout, the software maker is facing a long slog if it wants to turn its money-losing online services business into a Google-killer.
Since it withdrew a $47.5 billion bid for Yahoo Inc. after talks collapsed, Microsoft Corp. has offered little insight into what "Plan C" will entail. In that vacuum, experts are scraping the bottom of the barrel for ideas, with many concluding that they actually don't know what could get Microsoft out of its pickle.
It is not clear Microsoft can do this alone — and in fact, it's not always clear what "this" is. Some analysts say Microsoft must increase its search traffic to attract advertisers. Others believe Microsoft should concede that market to Google Inc. and find success elsewhere — leapfrogging rivals in areas such as display and mobile advertising.
All that is clear is Microsoft must come up with a Plan C soon, after acknowledging that its Plan A of going solo was troubled, forcing it to turn to Plan B of acquiring Yahoo.
Part of the problem analysts face predicting Microsoft's next moves is that the company has already tried the obvious tactics. It built its own search-ad platform from scratch and spent $6 billion to buy a major online advertising company, aQuantive.
Microsoft overhauled its search engine technology, and most analysts agree that its results are at least as good as Google's. It tweaked the design of its Live Search service to become more like Google. It touted its improvements on billboards and in glossy magazines.
Last year, the company seemed confident that it wouldn't take much to convert the hundreds of millions of Hotmail users, Xbox Live-connected video gamers and Windows Live Messenger chatters into a flood of search traffic.
"We've done a lot of work to get clear strategy and focus," Kevin Johnson, who heads the division that includes online services, told a gathering of financial analysts in July. In November, Johnson detailed aggressive goals that included capturing 30 percent of U.S. search queries.
By January, though, it was apparent Microsoft's efforts weren't working. Its share of U.S. search queries was stuck under 10 percent, behind Yahoo's 22 percent and Google's 58 percent. Microsoft responded by proposing to buy Yahoo for its traffic and search-savvy engineers.
That bid unraveled Saturday, and Microsoft is running out of options. Many expect Microsoft to make another run at Yahoo, or to buy other companies, such as Time Warner Inc.'s AOL, the online software company Salesforce.com Inc. or Facebook, the No. 2 online hangout in which Microsoft already owns a 1.6 percent stake.
For now, Microsoft seems focused on going alone, though the company declined to make executives available to talk about its online plans. In Japan, Chairman Bill Gates told reporters Wednesday that "at this point Microsoft is focused on its independent strategy."
Just two days before Microsoft Chief Executive Steve Ballmer walked away from the Yahoo bid, he outlined to employees a four-part plan to "build the most interesting position in the world in online advertising, media, and the kind of social connected search and media experiences that go along with that."
First, Microsoft must do the basics — a huge search index, lots of storage in the cloud for users — very well.
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http://www.msnbc.msn.com/id/24529387/
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