The tech giant is intent on becoming a key player in the search engine sector, writes Jim Colgan

When Bill Gates circulated a memo to Microsoft employees in 1995, he set the company on an ambitious path. The message, entitled 'The Internet Tidal Wave', was a call to embrace the internet age.

But as Microsoft ascended to web dominance by winning the browser war with Netscape, it neglected one aspect: search.

Thanks to lucrative online advertising sales in recent years, search engines have become the stars of the internet industry and, once again, Microsoft has decided to enter the fray.

Earlier this month, Microsoft unveiled its "next-generation" search technology, as part of a $100 million (€80.8 million) investment. The company's MSN portal has been its consumer web presence since Mr Gates's 'Tidal Wave' strategy took hold. But, although its search site has been around a long time, Microsoft has always relied on others to power it.

"This massive investment kicks off a wave of innovation from MSN that will move search beyond its current, limited offering to delivering the next-generation search experience," Microsoft's corporate vice-president of MSN, Yusuf Mehdi, said in a statement.

But as the technology behemoth tries to remould itself as a major player in the search sector, just how much does it have to catch up? And as all the search engines look beyond the web to a future in desktop searching, how are they trying to stay relevant?

Right now, Yahoo powers Microsoft's MSN search service. That means entering terms will essentially yield the same listings on both sites. Microsoft's new technology is currently in beta test on its "sandbox" web page. When it launches by year end, this will distinguish the company from its rivals, says Chris Sherman, editor of Search Day, a daily newsletter about the search engine business.

"Owning search allows you to take search in your own direction," says Mr Sherman, emphasizing a need for Microsoft to differentiate itself from its rivals.

In the past, search was not deemed all that important by the industry leaders. In fact, Yahoo was using Google technology up until last March when it made a similar change to Microsoft. Both companies' changes led some analysts to declare 2004 the "year of the search engine".

While revenues have increased in the search sector, analysts say this isn't the real reason for the renewed vigour.

"Search engines have increasingly become the front door for so much else on the internet," says Simon Hayward, a fellow with research firm Gartner.

Throughout these changes, Google has maintained the mantle of most popular engine. It boasts a 35 per cent share of the market while Yahoo has 30 per cent, according to Comscore networks. Microsoft's offering is a distant third with 15 per cent.

So can Microsoft catch up? Analysts say the company has channelled resources to search development over the past year and come up with a complex algorithm-based engine, similar to Google's. The beta search has an index size of one billion pages compared to the leader's four billion.

But Forrester Research recently predicted the company is poised to become a leader within the next year.

As part of the changes, Microsoft also treated its search page to a complete makeover. Much like Yahoo's recent actions, Microsoft has adopted a bare bones style in yet another trend set by the industry leader.

Before Google came on the scene in the late 1990s, the philosophy of the internet heavyweights was to cram the portal, or gateway page, with as much information as possible. Google's sparse design contrasted with its own elaborate index and won it the cult internet following it enjoys today.

Google was also the first to change what's called "paid inclusion" - where sponsor payments influence search results. Microsoft just followed Yahoo and another rival, AskJeeves, in separating this from the other results.

One advantage Microsoft and Yahoo now enjoy over Google is in breadth of content. Yahoo, for instance, boasts extensive travel, news and finance components and Microsoft has its Encarta encyclopaedia.

"We're starting to see Yahoo leveraging search across those areas," says Mr Sherman. And, he adds, Microsoft will do the same.

But Google has made its own efforts to diversify in recent years. Its news aggregation service has proved a popular addition since its launch in 2002. The company added blogging to the mix the following year. And its purchase of a digital photo company last week is what the executives call the "ongoing mission to organise the world's information". That's not to mention the yet-to-be-launched Gmail, which is already rocking the boat among free email providers.

This represents another trend, according to Gartner's Mr Hayward. In the past, search was embedded in the larger portal, "now it's as if search is the horse and the rest is the cart", he says.

While the search engines are converging with the services they provide, they are preparing for another union.

"The domain of internet search and the domain of personal search used to be very separate," says Mr Hayward. "Now they're starting to come together."

Desktop search is fast becoming the buzzword among executives and analysts expect it to be the next shift in the industry.

Microsoft has consistently touted this search feature in its next Windows offering, Longhorn, scheduled for a 2006 release. In a bid to beat that deadline, Apple chief executive Steve Jobs promoted this function with his company's next OS upgrade. And some experts say this is already happening with the sort of desktop toolbar that Google offers.

But other industry watchers aren't so optimistic in their ability to bridge the gap. Mr Sherman believes the difference between desktop and internet searches is too great. "It's really like blending oil and water," he says. "I don't believe it can be done that soon."

In the meantime, Microsoft's actions are intended to give Google a case of the butterflies.