Microsoft Joins Search Race

Just days after Bill Gates acknowledged Microsoft Corp. was “stupid” for not recognizing the importance of Internet search engines sooner, the software giant today plans to debut one of its own.

Microsoft will move its new search engine to the front page of its MSN service, trying to keep Web surfers -- and the advertising dollars that accompany them -- from heading to such rivals as Google Inc. and Yahoo Inc.

Advertisers spent nearly $3.9 billion placing targeted ads beside search engine results last year, about 40% of the $9.5-billion market for online advertising, according to research firm EMarketer Inc. Revenue from such text ads, which advertisers pay for only when someone clicks on them, is expected to grow 22.5% this year.

Redmond, Wash.-based Microsoft is starting by trying to keep the hundreds of millions of people across the world who already use Hotmail or MSN services from heading elsewhere to conduct searches. Although Google and Yahoo have significant leads, search engines will evolve so much in coming years that Microsoft has time to catch up if it makes the right moves, said Charlene Li, an analyst with Forrester Research.

“They don’t need to beat Google -- they just need to be in the game right now,” she said.

Yahoo had powered Microsoft’s search engine, but analysts said building one from scratch lets Microsoft integrate its products and services.

For example, Microsoft Search includes a feature called “Instant Answers.” It taps MSN Music and Encarta, an encyclopedia program, to answer more than 1.4 million direct questions, such as, “Who won the 1977 Super Bowl?” (Answer: Oakland Raiders.) Ask Jeeves Inc. offers a similar feature.

Gates has used the World Economic Forum in Davos, Switzerland, to vent his frustration about the progress of Microsoft’s young rival, Google. Last year he said Google “kicked our butts.” At this year’s event, when asked how Microsoft had missed the boat on Internet search despite its enormous research budget, he replied, “We were stupid as hell.” But he said the search industry was in its early days, and he vowed to catch up.

Gates was more subdued when asked in an e-mail interview about the competitive threat.

“There is still a lot of opportunity for us and others to deliver breakthrough search technology innovations to customers,” he said. “We’re focused on solving some of the hardest search problems with great software.”