MSN Falls Farther Behind

The press hype about a coming "war" between Google and MSN has mercifully abated in recent weeks, perhaps because it is becoming clearer that, far from being a credible Google challenger, MSN isn't even in the same league.

Last week, Microsoft reported MSN's December-quarter results, which were, in a word, weak.  Advertising revenue rose a dismal 12% year-over-year, continuing the deceleration trend of the last few quarters (by comparison, Yahoo!'s growth was 39% and a poor showing for Google will be in the 100% range).  Operating income dropped 55% to $58 million, as salesforce and developer headcount ramped.  Any indication that this investment will ever pay off will have to wait for another quarter.

The key to MSN's recovery (and relevance) is search, and search revenue was awful.  The company's display advertising revenue grew 20%, only half of Yahoo!'s growth rate but far better than MSN search, which apparently posted growth in the low single digits due to a 20% year-over-year drop in revenue per search.  The company attributed this trend to the adCenter ramp-up (Overture's revenue per keyword is presumably higher than adCenter's) and weak performance from third-party partner sites.

The one important bright spot--and, considering the rest of the division's performance, it's a head-scratcher--is that search query growth was in the "low to mid double digits" (presumable translation: 20%-45%).  This means that all is not lost.  If the company can get its act together and stabilize revenue-per-search, query growth alone should produce nice revenue growth.  Based on recent trends, however, this seems anything but a lay-up.

As argued here, MSN is, at best, competing with AOL for distant third place in the web wars.  The December quarter results--combined with AOL's recent partnership with Google and broadband distribution deals--suggest that MSN is even losing ground in this race.  Google, meanwhile, is so far ahead that it's not even visible over the horizon.

Comments

[Lite]

aside from not being in vogue, MSN Search is just plain awful to use.

You have a mish mash implementation within the MS family of sites and to top it off, MSN search is just plain ugly!

Goog is teh Pw3nz

[Stuart MacDonald]

Interesting that, given this, internally MSN is now seen as the Golden Child. What *that* means for MSFT in total is food for thought, no?

-- Stuart

[flambeee]

advrtsng is a tough business. now bawmer givin' sh*t away...

http://www.forbes.com/2006/02/15/microsoft-ballmer-msn-cx_po_0215autofacescan04.html?partner=yahootix

[Tel Aviv]

Did anyone notice how microsoft is taking charge on two expanding markets ? Games - PS3 with its delayed launch will make it a Microsoft only game eventually or at least an even market. And Mobile man, they are taking it one by one.