Ouchie. As Danny says, “[Not] a pretty picture for Microsoft … They haven’t held share. It’s drop, drop, drop.”

It really is remarkable how badly Microsoft is doing against Google. I never would have thought that, nearly four years after they started their “Underdog” project to build a Google-killer, Microsoft would not only be badly behind in search, but also actually losing market share.

Well, what did anyone really expect?

Let’s put some things into context. First, all of the above is brutally, painfully true. Google hired smart, self-starters who are into big risk / big reward. So what happens when you have 3,000 engineers? You get hundreds of new services, as all these self-starters try to make the next Google Search. You don’t ask Beethoven to try and improve Mozart’s symphonies, you ask Beethoven to make his own! The result? Google’s move to guide its herd of developers to work on smaller features of the mainline products. This is also going to be extremely painful for Google… while they do the occasional test, for the most part there haven’t been any significant changes to the major apps in some time. That’s because the risk of messing things up becomes greater than the reward for improving things slightly, which is usually what you get for small features. Thus, you tend to get stagnation if you’re not careful… and many would argue Google has stagnated in a lot of ways (and I’d be one of them).

Yahoo is just in a rough place. They’ve got Google dominating, and they’ve got us coming up from behind. So they’re trying to do everything to avoid getting squeezed everywhere… and the result is too many people doing too many things in a mediocre way (the buzz-speak is “not enough critical mass in several areas”). Nothing surprising here either.

And then there’s us at Microsoft bringing up the rear with declining query share. Well… yeah. When I first arrived, our management had set a (standardly super aggressive) goal of having relevance that beat Google after 2 years… and when 2 years came and went… well, let’s just say the duration of achieving that goal is still under some discussion. It’s not realistic to think that it can be done quickly. If you ask Google, Yahoo, or the fine SEOs at WebMasterWorld or other such places, they’ll all say that Live Search has increased in quality over the years so that it’s much closer to Yahoo and Google. Not yet better, but no longer laughable. And yeah, we’ve done our own share of copying feature parity, and we’re starting to do a few things that cause Google and Yahoo to do the same (ok, noODP is a small feature, but it’s a start!).

Here’s the honest truth… Microsoft will continue to lose share until it can make Live.com something people chose versus just the IE default. That will happen when the average person starts to see Live.com as a bit better than Google. Right now, Google wins on brand (people like them a lot) and quality, so it’s to be expected that more existing Yahoo / Live customers will migrate to Google than vice-versa and new customers will pick Google more than Live or Yahoo. Google is making people focus on features, which should tell people that they’re worried about how we’re catching up, and are going to put more people on their core products to keep and extend their lead. So it’s going to be a tough, tough battle for Microsoft to get there… and hopefully the chaos that starts out with a new Senior VP turns into increased efficiency sooner versus later. I know I’m working as hard as I can to make this happen sooner versus later, but nevertheless, it’s gonna be a stand-up fight against someone who has reach over us. Time to be smart.

Coming next: my predictions on what happens to Yahoo… stay tuned!

Edited to clarify a point on goals and fix minor grammar.