REDMOND, Wash.--In the wake of Microsoft's search deal with Yahoo, online chief Qi Lu outlined why the business is so important to Microsoft and how the company hopes to make headway.
For one thing, he promised the crowd of financial analysts, it can be a huge money maker.
Lu
"When you are at scale it can be a hugely profitable business," Lu said.
The problem is that many of the costs are the same even if you are not operating at scale, which is the place Microsoft has found itself. "Even if you have one user you have to crawl the whole Web."
But the challenge goes further, he said, noting that smaller players, by their nature, have fewer ads to show, meaning those ads are less relevant and the search experience is not only less profitable, but less desirable for users.
The Yahoo deal will help Microsoft in the scale arena. Combined, the two companies would have more than triple the search share that Microsoft has on its own. That said, the combined entity still has less than half of Google's share.
"With larger scales there are several important advantages," Lu said. "There is an almost immediate lift in the quality of user experience."
For example, suggested searches are based on a fairly simple algorithm, but one that gets much better the more queries a search provider sees.
But, even beyond the scale issues, Lu acknowledged that Microsoft also faces a brand challenge. He said that studies show that given a choice between Google's brand with another provider's results and Google's results with another provider's brand--users will choose the Google name, which has become synonymous with search.
"People will prefer the Google brand because of the strength it has," said Lu, who joined Microsoft from Yahoo at the end of last year.
Answering those challenges won't happen overnight, he said.
"We want to be brutally honest about where we are," he said. "It's going to take time."
Microsoft relaunched its search engine as Bing in June and has seen a slight bump in market share, though it remains to be seen whether it can hold onto and build on that initial interest.
"Overall the early feedback from the market has been encouraging," Lu said. "It's a good step, but it's the first step in a long, long journey."
(Credit:
Microsoft)
Microsoft is indeed hiring former Yahoo executive Qi Lu to run its online services business, but in the process, it is also losing one of its own top advertising executives.
Qi Lu
(Credit: Yahoo)In its announcement of Lu as the president of Microsoft's online services group, Microsoft said that Brian McAndrews, former CEO of Aquantive, would be leaving Microsoft. McAndrews was seen as the top internal candidate for the post, which came open when Kevin Johnson left to become CEO of Juniper Networks.
Lu will start at Microsoft on January 5 and will report to Steve Ballmer, Microsoft said.
"I am genuinely excited about the opportunities ahead for Microsoft to make an enormous impact on the online industry," Lu said in a statement. "Microsoft has built a great foundation for its search and advertising technologies and put an amazing team of researchers and engineers in place to drive the next wave of innovation in online services."
Lu was at Yahoo for a decade, most recently as vice president of engineering overseeing the company's search and e-commerce efforts. Before Yahoo, Lu was a researcher at IBM's Almaden Research Center.
Reporting to Lu will be Satya Nadella, who has been heading Microsoft's search business as well as senior VP Yusuf Mehdi and two new vice presidents--divisional finance head Rik van der Kooi and Scott Howe--who will head advertiser and publisher efforts in the wake of McAndrews' departure.
Microsoft said McAndrews "has decided to transition out of Microsoft, and will do so over the next several months, serving in a consultative capacity to Steve Ballmer and Qi Lu during that time."
Ballmer praised the departing executive in the statement.
"Brian McAndrews built a world-class business for advertisers and publishers and led the successful integration of Aquantive into Microsoft, setting the foundation for our next phase of growth," Ballmer said. "While I am sorry to see Brian leave the company, I respect and understand his decision and wish him nothing but the best in the future."
Microsoft's plan to hire Lu was reported earlier by Dow Jones' AllThingsD site.
Microsoft's efforts to acquire one Yahoo employee at a time appear to be working.
As has been rumored for a while now, former Yahoo search executive Qi Lu is expected to be named head of Microsoft's online efforts, according to a report on All Things D.
All Things D's Kara Swisher says the announcement could come as early as Monday, though some details remain to be worked out, such as whether Lu, whose experience is largely on the technical side, would be paired with one of Microsoft's business executives.
Former Aquantive CEO Brian McAndrews was considered a leading internal candidate for the job.
Lu's hiring would follow that of fellow Yahoo search executive Sean Suchter. Suchter was named general manager of Microsoft's Yahoo refugee camp, or, as Microsoft calls it, the Silicon Valley Search Technology Center.
Yahoo announced Lu's departure in June, along with that of several other executives.
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