January 26, 2007 1:21 PM PST

Microsoft hurt by poor Live branding, analysts say

Bungled branding of the new Windows Live Internet services has hurt Microsoft and could affect its chance to play catch-up with Google, analysts said on Friday.

On Thursday, Microsoft lowered its sales forecast for its Internet services business for the full year from 11 percent to between 3 percent and 8 percent. It also acknowledged that its search market share has dropped. Windows Live Search saw its searches drop nearly 10 percent from a year ago, while Google's rose more than 22 percent, according to figures released this week from Nielsen/NetRatings. Google has 50.8 percent market share, followed by Yahoo at 23.6 percent and Microsoft with only 8.4 percent.

"Microsoft's Live branding has been tremendously confusing and has hurt the company, and it is very likely contributing to the situation they are in right now. They've created another brand and have not differentiated it."
--David Smith, analyst at Gartner

While it's too early to write the obituary for Windows Live, things aren't looking good in its first year, analysts said.

"There are concerns that there has been some slippage or (Microsoft) has moved backwards" with regard to its push to better compete against Google in the market for consumer software that is supported by ads, said Michael Cherry, lead Windows analyst at Directions on Microsoft. "This is a long-term thing, so I'm not sure how to measure it on a quarter-by-quarter basis."

While Microsoft doesn't break out the financial figures for its new Live services from its established MSN content services, both of which make up its Internet services business, it's likely the newer brand is what is weighing things down.

"Microsoft's Live branding has been tremendously confusing and has hurt the company, and it is very likely contributing to the situation they are in right now," said David Smith, an analyst at Gartner. "They've created another brand and have not differentiated it."

It's too early to pass "final judgment" on the strategy, Smith said. But now is the time for Microsoft to clearly explain its strategy, he said.

Microsoft has invested billions of dollars in creating the Windows Live brand, separating the free, online consumer Internet services like e-mail and instant messaging from its MSN brand and building its own search engine and paid search platform from scratch.

Microsoft launched its paid search program, AdCenter, last May and is still working to gain traction and compete against market leader Google. In the meantime, No. 2 search provider Yahoo has launched its next-generation paid search platform, albeit a quarter late.

But the advertising program will only succeed if there are eyeballs to view the ads. How many people think to type in "www.live.com" to search the Web? Users at a Web 2.0 panel in November said they didn't even know Microsoft had a search engine.

Adam Sohn, a director in Microsoft's online services group, acknowledged that the growth in search queries and search advertisers hasn't been as good as the company had hoped.

"We feel good about the transition, but we continue to see some challenges with search query growth," he said. "There is some room for improvement there and we are going to work to increase the speed of that growth and increase market share.

"We will see more advertisers in the system--which, frankly, will drive prices up because it's an auction system," Sohn said. "More folks in there bidding will mean prices will go up."

Number of users, page views growing
Microsoft still has a tremendous number of users of its Windows Live Mail and Live Messenger services and readers of its MSN content, he said. The number of users grew as much as 40 percent from a year ago, while the number of page views was up at least 30 percent, he said. And ad revenue rose 20 percent from a year ago.

"The pieces are falling into place," he said. "Would we like the numbers to be more positive more quickly? Of course we would."

It's not just that Microsoft wants to expand its business beyond software. The company also sees the potential that more and more software, particularly consumer software, will be delivered online and, in many cases, backed by ads. Some inside the company have been pushing for the company to offer some of its titles for free.

The company even has said it is exploring whether it makes sense to have versions of its low-end Works software that are either online, ad-supported, or both.

Cherry complained that some Live services do not work on browsers from rivals. "For example, Microsoft Windows and Office Live services really are not browser independent. They really only work with Microsoft's browser and only the latest versions," he said. "So I have to question whether they even understand the marketplace."

Consumers can use any browser with Live Search and most of the Live services, except for a few, such as Virtual Earth and some MSN services, Sohn said. "We're working on this."

Despite the hurdles, don't expect Microsoft to throw in the towel any time soon.

"This is a long-term bet," said Sohn. "The big challenges are worth fighting for and worth succeeding at, and we're absolutely willing to commit the resources."

CNET News.com's Ina Fried contributed to this report.

See more CNET content tagged:
David Smith, paid search, branding, Microsoft Windows Live, market share

52 comments

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Microsoft's sites don't support web standards
I've tried to use MSN with FireFox 2.0 and there are a lot of problems.
Posted by mh20932 (41 comments )
Reply Link Flag
FireFox 2.0
Doesn't conform to web standards.
Posted by DrtyDogg (3084 comments )
Link Flag
FireFox 2.0
Doesn't conform to web standards.
Posted by DrtyDogg (3084 comments )
Link Flag
Good.
It is good that MSN doesn't work with Firefox.
Why use a standard compliant and great browser only to surf a crappy proprietary Windows centric website.

Hey the Web is big enough to find what anyone wants.

Nobody is looking for MSN. That is why it is a failure. Microsoft cannot shove MSN down yoour throat like they can their software.

On the Web only the best survive.
Posted by t8 (3716 comments )
Link Flag
.NET 2.0?
Remember .NET, They used that for everything too, very confusing.

So.. I guess Microsofts mad because they coppied Googgle, and Google is still beating the pants off them.. maybe thats just because it works better ehh guys?
Posted by Solaris_User (267 comments )
Reply Link Flag
Exactly what I was thinking!
Yeah, Microsoft started renaming all of their products .Net. Then, they changed their mind when that nobody inside or outside Microsoft could figure out what it meant.

How about .Vague I'e heard that when Windows.Vague comes out, it's going to have that new WinFS file system... Except, it's going to be called FSlive!
Posted by DougDbug (62 comments )
Link Flag
Poor Branding? Sure. But a great product...
From its recent beginning, MSN Live has consistently beat Google with certain products and product features. For example, MSN Live's personal homepage was the first to offer tabs; and it's mouse-over-for-more-text on the RSS feeds is better than Google's similar, but more awkward feature. It just looks cooler, too.

Another example: Check out MSN Live's image search and Google's. They look pretty much the same, eh? Well, MSN's has ALWAYS looked like this... Google just adopted it in the last couple of weeks.

What else... mail. Since adding greater AJAX functionality to Hotmail and a better spam filter, it's quickly catching up with Gmail.

That said, Google's search is still the best. The point is, MSN is doing what it's ALWAYS done best... catching up (ask Apple and Netscape).
Posted by imario (2 comments )
Reply Link Flag
You know, you have to...
... give it to the those folks on the Redmond Campus sometimes as imario have said in his post; "The point is, MSN is doing what it's ALWAYS done best... catching up (ask Apple and Netscape)." (what about IBM/Lotus). Just how long the 90% plus control of the desktop space will hold is left to be seen.

Come-From-Behind-Kids and Google SpreadSheets you say! It will appear though that they are not the only ones that are good at the "catching up" game by the look of things!
Posted by Commander_Spock (3123 comments )
Link Flag
Some great products
I do enjoy the homepage, use it daily. The image search is great too. But the search just sucks. I get awful results when using it. Hotmail, maybe it's my computer but it seems to take to long. The point of AJAX is to speed up dynamic web pages, but in Hotmails case it just slows it down, which I didn't think was possible. Gmail on the other hand got it right. Light quick and powerful. I personally prefer local.live for a map service though even though I can't really put my finger on why. . .
That said I guess in my eyes so far they are split:
Search - Google
Homepage - Microsoft
Email - Google
Map - Microsoft
Posted by DrtyDogg (3084 comments )
Link Flag
Ad Supported....
Comments on cnet.com. Thanks for the adv. Yes, microsoft the
great innovator (imitator) does much catching up. I am still
waiting for windows to catch up to the excellent user interface
of Mac OS. Well honed, intuitive user interface is a challenge for
them, for some reason. Even their Mac software is so unMac
like. They don't even support standard Mac services, which
makes their software less user friendly. It also either lacks many
useful features or they have to write their own features
duplicating work unecessarily.

microsoft continues to stick to its old way of thinking. Their
internet services are only compatible to their browser. Why?
They make no money from IE. Why not embrace open standards
design so that any browser can take advantage? They really only
want to see their software in the marketplace.
Posted by sandman619 (54 comments )
Link Flag
Only one problem...
If you're not using Internet Explorer, which doesn't run on Linux or
Mac OS X then you're out in the cold. I wouldn't know about with
the homepage but Mail is very weak and looks even worse than the
Hotmail design..
Posted by PCCRomeo (432 comments )
Link Flag
Microsoft is a victim of it's own success
Whether Microsoft like it or not, they are typecasted as a software company, not an Internet company.

E.g., Coca Cola may be the most recognizable brand in the world, but what would happen if they tried to sell cars? It would dent their brand and waste their time and money.

Microsoft doing search and weblications confuses people. People think Google when it comes to Web apps and Search.

Think about Windows or Office Live. What the hell are they? We know what Windows and Office are, and perhaps some could understand them providing some kind of online extentions, but Office Live isn't an online version of Office as one would expect and that is a big problem. God knows what it is suppose to be.

When I think Office Live, I think Google Docs. I can do spreadsheets and documents online with Google. I would never buy MS Office now and Office Live doesn't appeal to me because I don't even know what it is.
Posted by t8 (3716 comments )
Reply Link Flag
MS is a victim of evolution.
They were given a monopoly in the early 80s, so they haven't
had to compete. Now they're trying to move into other markets
where IT departments can't help by forcing people to use their
products.

They have to compete on the basis of quality and innovation
now, but those are two things they know very little about,
because they were never in a position where they needed those
skills. Why should anyone be surprised that Microsoft can't be
successful outside of their OS monopoly, especially now that
even that monopoly may be in danger?
Posted by Macsaresafer (802 comments )
Link Flag
Sony sounds like that...
Since (I don't know if this is still true) you could get a car loan, TV, and shampoo from Sony, maybe Microsoft should release "AeroSoap" and "ClearGlass" products! That would be interesting... just be sure to use them in a clean room! After all, if Windows has bugs and draws viruses, imagine what cleaning products would bve like...
Posted by ben::zen (127 comments )
Link Flag
Why MS SEES GOOGLE AS A THREAT
Normally when a company get's to be a threat microsoft buys them out, but in Google's case they have grown to fast for ms to be able to without breaking the bank...
Posted by SiXiam (69 comments )
Reply Link Flag
The IBM Factor To Be Considered Too!
While there may be some truth in your statement, an even formidable threat can be in the making from one of Microsoft's one-time arch rival in the desktop space - IBM. After-all, who says "elephants" can't dance!
Posted by Commander_Spock (3123 comments )
Link Flag
buzword 2.0
buzword 2.0
Posted by sakcee (4 comments )
Reply Link Flag
FOR ONCE MAKE SOMETHING NEW!
God, it's easy to despise MS.

Can the ever, ever, ever create a new market? Can they ever, ever
not merely copy? Can they ever innovate?

I think the ribbon in the new office might be the one thing in past
25 odd years...

F'ing sad...
Posted by Mark Greene (163 comments )
Reply Link Flag
Eureka!
"I think the ribbon in the new office might be the one thing in past 25 odd years." Can anyone say if the (Economic Rate of Return (ERR) thing (functionality) has been found under the new Office "r-i-b-b-o-n" giving some the opportunity (or well on their way) to shout "eureka" yet again! Vista and Office 2007 is yet to be taken for that test from this base!
Posted by Commander_Spock (3123 comments )
Link Flag
I am hurt by Microsoft
As long as they tie me to my OS and keeps me from reinstalling for a fresh OS I call that a bunch of BS. Telling me I have to pay them again and again and again just because I am guilty being a hardware hobbyist. When buying Windows or Vista I should be able to install and activate as often as I need to.

I can just image what headaches Vista will bring this year alone.
Posted by inachu (963 comments )
Reply Link Flag
Microsoft don't 'improve' anything!
And anyone who knows anything about PC's should always encourage users to move away from anything microsoft. Get them to delete IE from their desktop...don't get updates from microsoft... you can get your microsoft updates from www.windizupdate.com which you can use any browser(Except IE) to get your updates. Don't upgrade your office application, look for alternatives they are out there if you look. Basically Microsoft/Ballmer think they can manipulate the consumer, ultimatly it's up to the consumer to say 'No more I've had enough!'. To use office07 or vista is to conform to Microsofts money making scam, this has nothing to do with innovation or any real improvements.
Posted by ozidigga (77 comments )
Reply Link Flag
If nothing else....
... the people at the company you referenced appears to know very well how to embrace, extend and extinguish to be able to now have control of the reported 90% plus market share of the desktop space. "Netscape"... you say!
Posted by Commander_Spock (3123 comments )
Link Flag
Improve
How about, "Microsoft doesn't improve anything." Perhaps their grammar checker might have helped you out.
Posted by count0--2008 (38 comments )
Link Flag
Not Branding!
Live has NOT been hurt by bad branding. It's been hurt by bad functionality and bad support. It's amazing how companies delude themselves into believing that customers just haven't gotten the marketing message. Products fail when they don't deliver what the CUSTOMER wants. Unfortunately, most companies only want to give the customer what benefits the company: cheap products that serve mostly to advertise others; value for the company, not the customer; and low cost, under-qualified support.

Office Live is a great example. The service does not work for many customers and the support is so frustrating that many give up after receiving nonsensical answers that have little to do with the problem the customer is having. The service is still beta quality and does not seem to be improving. That's NOT a branding problem and some clueless executives need to get a grip on that concept.
Posted by ogman (150 comments )
Reply Link Flag
Well actually...
If history teaches us anything, it's that product quality is completely unrelated to sales. Microsoft products have always had poor functionality, poor quality and poor support. But for some reason they've managed to dominate the marketplace. I guess the geniuses in Redmond expected that strategy to continue to work for them.
Posted by lcromwell34289 (12 comments )
Link Flag
 

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