Analysts: Microsoft plots Web search expansion

Microsoft Corp. is significantly increasing its investment in Internet search, tripling its search team and preparing its own paid listings platform, according to a report from industry analysts.

What the analysts call a "strategic shift" at Microsoft includes an expansion of the search team from less than 70 to about 200 people and is backed strongly by senior management, including Chief Executive Officer (CEO) Steve Ballmer, analysts with U.S. investment bank SoundView Technology Group Corp. said in a report published Wednesday.

The analysts said that, after an extensive investigation with sources inside and outside Microsoft, they can "confirm definitely" that Microsoft is setting its sights on search. Ballmer discussed search strategy last week in a meeting in Redmond, Washington, and the search plans were also highlighted in a company memo, according to the analysts.

The analysts believe that, as part of the new strategy, Microsoft will develop its own paid listings platform. This would be devastating for Overture Services Inc., which now handles paid listings for Microsoft. A third of Overture's revenue in last year's fourth quarter came from Microsoft, according to the SoundView analysts.

"There is a real risk to the sustainability of Overture's platform," according to the analysts, who also expect Yahoo Inc., another main Overture customer, to build its own paid search platform. Together, Microsoft and Yahoo accounted for two-thirds of Overture's revenue in the last three months of 2002, according to SoundView.

Microsoft denied it has plans to enter the paid search market.

"Microsoft and MSN are completely committed to our relationship with Overture. We have no plans to develop our own paid search platform," a spokeswoman for Microsoft's MSN said Friday.

She did, however, say that Microsoft continues to expand its search business.

"We are committed to improving the customer experience with MSN Search and we continue to build and invest in this important business for the long term," she said.

The analyst report came a day after Overture announced it would provide paid for search results on MSN Korea. Overture already has agreements with Microsoft for MSN in the United States, Canada, the United Kingdom, Germany, France and Japan.

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