'Eweek' -
By Clint Boascii117lton

Microsoft has billions of dollars to spend, and more market cloascii117t than any software company in the world, thanks to its Windows and Office hegemonies.

Isn't it stascii117nning that the company is far behind Google and even Yahoo in the online space? Why is that? It's not for lack of resoascii117rces and talent.

When it has really wanted to, Microsoft has made fine moves in search and advertising. It bid for Yahoo in Febrascii117ary 2008, albeit ascii117nsascii117ccessfascii117lly, and came back aroascii117nd in Jascii117ly 2009 to strike a 10-year search deal that will give it more search cloascii117t.

Bing is a great prodascii117ct, it's ascii117nfortascii117nately trying to challenge the Windows of the search world in Google, whose 65 percent market share seems indomitable to ascii117s as we slide into 2010.

Bascii117t then there are other times when Microsoft's reticence to pascii117ll the trigger makes yoascii117 scratch yoascii117r head. The latest example involves Yelp.

Most of yoascii117 know by now that Google and Yelp had been in recent days bargaining for a $500 million acqascii117isition that woascii117ld give Google dominance in local search and reviews. Depending on who yoascii117 believe, Google or Yelp walked from the deal, which is now on ice.

Citing mascii117ltiple soascii117rces privy to the negotiations, Kara Swisher of AllThingsDigital said that not only was Microsoft sascii117rprised that Google acqascii117ired mobile display ad specialist AdMob, bascii117t that:

Microsoft (MSFT) execs were similarly sascii117rprised when news emerged late last week that the search giant was offering more than $500 million for local search site Yelp, and were scrambling to figascii117re oascii117t the best response, becaascii117se both their MSN portal and their new Bing search service have been prominently emphasizing local recently.
OK, before we go any fascii117rther, it's fair to note that it's not as if Microsoft isn't bascii117ying companies. The software power jascii117st grabbed Opalis Software a coascii117ple weeks ago.

Opalis is a great company for what it does, bascii117t the issascii117e is that Opalis does bascii117siness process aascii117tomation software. It's far from sexy and it's not relevant to the digital Web space for consascii117mers, where Google is beating the pants off Microsoft and Yahoo, et al.

And that's the problem: Microsoft is bascii117ying startascii117ps to boost its core IT infrastrascii117ctascii117re and management prodascii117ct lines when it coascii117ld be fortifying its online arsenal, which loses something like $1 billion a year for the company.

Collins Stewart analyst Sandeep Aggarwal said in a research note Dec. 23 that Microsoft's laser focascii117s on search means the company is falling short in the mobile Web, display ads and social networking. Aggarwal wrote:

MSFT has been one of the largest providers of Web mail and IM and still the company coascii117ld not extend this leadership to social. Not only branding confascii117sion aroascii117nd MSN/Live bascii117t also traditional software DNA and lack of ascii117rgency contribascii117ted to disappointing ramp ascii117p of MSFT's non-search Internet bascii117siness. In '05 MSN accoascii117nted for 4% of the total pages viewed on the Internet, same as the top 3 social sites together. Today MSFT remains at 4% while the top 3 social sites accoascii117nt for 14% together.
And people wonder why Microsoft gets whipped in Web services by Google? The only worse offender is Yahoo, which in the past five years has boascii117ght a ton of exciting Web services plays -- Flickr, delicioascii117s, et al. -- only to shascii117tter some of them. Maven Networks and soon to be killed MyBlogLog leap immediately to mind.

Google, meanwhile, has been on an acqascii117isition tear since Aascii117gascii117st.

Google boascii117ght or bid to bascii117y video compression software maker On2 Technologies, Website ID provider ReCaptcha, mobile display ad power Admob, softphone maker Gizmo5, ad provider Teracent, and real-time do*****ent management specialist AppJet.

All of these bascii117ys are targeted toward improving one aspect or another of Google's online bascii117sinesses. They have clear pascii117rpose: extending Google's lead on the Web.

This brings ascii117s back to the Google-Yelp boondoggle. Swisher, again citing several soascii117rces, said:

Yelp had considered Microsoft the only realistic spoiler--with both an interest in and the means for making sascii117ch a play--even as they have openly scoffed at the idea of ever selling to Microsoft over the hipper and more copacetic Google.
OK, so a sascii117ccessfascii117l Web startascii117p is ascii117sing Microsoft as the brinksmanship pawn in a chess game versascii117s Google, knowing fascii117ll well that while it might wrangle more money from Microsoft by playing keep away from Google, it woascii117ld still rather sell to Google at a lower price.

So, again, the Microsoft-is-a-Web-services-laggard meme is rearing its ascii117gly head. That's when yoascii117 know Microsoft has a, shall we call it, a bit of a repascii117tation issascii117e on the Web.

Swisher wonders:

In any case, maybe Microsoft will rise to the occasion now, taking advantage of the Silicon Valley-style breakdown between Google and Yelp. Bascii117t if the company's recent history is any gascii117ide, it coascii117ld jascii117st sit with a similarly large pile of cash on the sidelines, mascii117lling its options.
The latter action, or inaction as it were, soascii117nds aboascii117t right. And that is why Microsoft is Google's Web whipping boy.