Microsoft Rumbles, Rearms For Online War It Can't Win Without Yahoo

Microsoft CEO Steve Ballmer dropped the ax today, and it landed on Kevin Johnson’s neck.

Johnson, Microsoft’s soon-to-be ex-President of Platforms & Services, has been with Microsoft since 1992. He was in the unfortunate position of leading the recent Vista effort through its very troubled launch, and running Microsoft’s online efforts while watching their lunch be eaten by Google. He takes a consolation prize: He will become the CEO of Juniper Networks, a $12 billion network hardware manufacturer.

So what’s next for Microsoft? The Windows and Windows Live products now report directly to Ballmer. All the online stuff, including search, advertising and most MSN/ services will be headed by a new executive. Ballmer says they’ll look for the person to lead their Google-killing efforts both internally and externally.

Putting Johnson aside for a moment, It’s damn well time Microsoft put someone in charge of its online efforts. Johnson had to split his time with the Windows cash machine and the results have been somewhat predictable. A half time executive running a product that doesn’t even have a brand (Live? MSN? Microsoft?) can’t win against Google.

The truth is that the next guy (or gal) isn’t going to make any fast gains on Google, either, no matter how awesome Mesh and Silverlight are. Ballmer seems willing to spend as long as it takes, though, noting that the war with Google is over the long term, not the short: “In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas…”

That sounds like Microsoft will channel yet more Windows and Office profits into their Internet startup. There’s no question that they intend to compete in search and advertising any more. The only question is whether they have any chance of winning.

Even if Microsoft concedes that they have a years (decades?) long war on their hands, they have to face the fact that Google’s commanding lead in search, and the network-effect driven advertising wealth that comes with it, will be hard to beat. And all those client software profits won’t last forever, particularly since Google is eating away at that via their suite of free Office products.

The first thing Microsoft needs to do is buy Yahoo – all of it. That brings them to half of Google’s market share in search, and at least they’re in the game.

Another thing Microsoft needs to do is simply pick a brand name for the Internet side of things, and stick with it. Microsoft. MSN. Live. Whatever, just name it something a little catchier than “Online Services.”