MSN's $100 Million Search Engine Revamp

Severs Ties With Yahoo!; Takes Page From Google

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NEW YORK ( -- Microsoft's Internet portal MSN took a stand against Google and Yahoo! on the search battlefield today as it began testing a new search engine as part of a revamping effort, which will cost the company $100 million.

MSN's search engine is currently powered by Web search provider Inktomi, which Yahoo! acquired in 2002. MSN also will cease using paid inclusion, in which advertisers pay to appear in search results, and which is currently provided by Yahoo!'s Overture.

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Evaluating paid inclusion
The company is going to evaluate paid inclusion and will resume using it if they can ensure that relevancy is being met, according to an MSN statement.

Industry experts say the building search muscle goes a long way toward MSN distancing itself from its partners and competing more effectively against them.

"This is MSN's big interim step," said David Berkowitz, director of marketing at search engine marketing company iCrossing. "It's showing the world 'We're on our way to being our own search engine.' They really don't want to rely on these partnerships anymore. Why would they want to give money to Yahoo! and Overture if they are competing with them?"

Citigroup Smith Barney downgraded the Yahoo! stock from a buy to a hold today; one reason it gave was the risk associated with Yahoo! losing the MSN search business.

MSN currently ranks third behind Google and Yahoo! in terms of search popularity. In May, for example, only 28% of consumers surfing on the Web used MSN, compared with 43% who used Google and 32% who used Yahoo!, according to Nielsen/NetRatings.

Cosmetic changes
MSN also unveiled cosmetic changes to its search home page ( In addition to increasing the speed of search results, the page has been uncluttered of ads or other content. And the results pages also contain fewer ads.

When asked if it the redesign is meant to resemble the austerity Google's home page, Lisa Gurry, director of MSN, said the new look is in response to member comments. "It's a very light, fast-loading service," she said. "The overall goal is to increase the relevancy of our search service to users. This will increase the popularity of our site, which will benefit the advertiser."

A drop-down box gives the searcher access to certain search databases, instead of having to search the entire Web, Ms. Gurry said. The databases include news, dictionary, Encarta Encyclopedia, stock quotes, movies and shopping. Links to other MSN offerings, such as Hotmail, sports, entertainment and weather, appear beneath the search box.

On the results pages, sponsored links will be clearly delineated. "Customers want to know which [results] are advertising and which are algorithmic results," Ms. Gurry said.

Local search service
Local search services will also debut this year, she said. Both Google and Overture have launched local search products recently.

MSN is spending $100 million to revamp its search product. Ms. Gurry would not delineate how the money would be spent, saying only the money would be split among redesign, marketing, research and development costs. Clearly, observers say, much of the money will go toward starting the engine. Ms. Gurry said marketing will focus at first on banner ads and search-based advertising across MSN sites.

"Microsoft is behind in the search area, but there are plenty of examples of Microsoft coming from behind and then winning," Mr. Berkowitz said. "When the Internet first became a money-maker, Microsoft was years behind everyone and Netscape was leading. No one hears anything about Netscape anymore."

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