New Microsoft browser raises Google's hackles

[USMCRET6391]

By Steve Lohr
The New York Times

April 30, 2006

With a $10 billion advertising market at stake, Google, the fast-rising Internet star, is raising objections to the way that it says Microsoft, the incumbent powerhouse of computing, is wielding control over Internet searching in its new Web browser.

Google, which only recently began beefing up its lobbying efforts in Washington, says it expressed concerns about competition in the Web search business in recent talks with the Justice Department and the European Commission, both of which have brought previous antitrust actions against Microsoft.

The new browser includes a search box in the upper-right corner that is typically set up to send users to Microsoft's MSN search service. Google contends that this puts Microsoft in a position to unfairly grab Web traffic and advertising dollars from its competitors.

The move, Google claims, limits consumer choice and is reminiscent of the tactics that got Microsoft into antitrust trouble in the late 1990s.

"The market favors open choice for search, and companies should compete for users based on the quality of their search services," said Marissa Mayer, the vice president for search products at Google. "We don't think it's right for Microsoft to just set the default to MSN. We believe users should choose."

Microsoft replies that Google is misreading its intentions and actions. It says the default settings in the browser, Internet Explorer 7, are easy to change. And it says the product was designed with consumers and many partners in mind--even though it might not be to the liking of Google, the leading search engine.

"Whatever behavior happened in the past, the guiding principle we had is that the user is in control," said Dean Hachamovitch, general manager of the Internet Explorer group.

Companies often talk with antitrust officials, and the talks do not imply that an investigation is imminent. But they do indicate that Google is pursuing every option in its escalating rivalry with Microsoft, which has already led to some public battles.

Last December, Google outbid Microsoft to remain the primary search service on America Online, paying $1 billion and taking a 5 percent stake in AOL. Last year, Microsoft sued Google to stop a star computer scientist and manager at Microsoft, Kai-Fu Lee, from working on search technology at Google. The suit was settled, and Lee runs Google's operations in China.

The browser that set off the latest dispute has been in development for some time, but Microsoft first made it available to the public for downloading last week in a test version. It is the first new release of Microsoft's browser in five years. A final version is expected to be released this summer and will be included in Microsoft's new operating system, Windows Vista, which is scheduled for release next January.

The focus of Google's concern is a slender box in the corner of the browser window that allows users to start a search directly instead of first going to the Web site of a search engine like Google, Yahoo or MSN. Typing a query and hitting "Enter" immediately brings up a page of results from a designated search engine.

That slice of on-screen real estate has the potential to be enormously valuable, and Microsoft is the landlord. Internet Explorer 7 is the first Microsoft browser to have a built-in search box, while other browsers like Firefox, Opera and Safari have had them for some time. Google estimates that the boxes, when available, are the starting point for 30 percent to 50 percent of a user's searches, making them a crucial gateway to the lucrative and fast-growing market for advertisements that appear next to search results.

Microsoft has lost some ground in the browser market in the last year, mainly to Firefox, which is a Google ally. But Microsoft still holds more than 80 percent of the market. And Internet Explorer 7 is expected to be extremely popular because it is an improvement over Microsoft's previous browser, and because Microsoft will promote downloads of it and include it in Windows Vista.

That gives Microsoft the potential to use the browser to steer substantial traffic, and business, to MSN and away from rivals. MSN handled 11 percent of searches in the United States in March, down slightly from a year earlier, according to Nielsen/Net Ratings, a market research firm. That put it well behind Google, which had a 49 percent share, and Yahoo, with 22 percent.

Microsoft insists it has no intention of deploying its browser as a weapon in the search wars. But Google suspects otherwise.

In meetings beginning last year, Google told Microsoft of its objections to the company's plans to set MSN as the default search engine in Internet Explorer 7, according to Mayer of Google. Yahoo raised similar objections in a meeting with Microsoft last year, according to a Yahoo employee who was briefed on the conversation. Yahoo declined to comment last week beyond a statement: "We would be concerned about any company's attempts to limit user choice or change user preferences without their knowledge, and believe others would share that concern."

With its objections unresolved, Google took the matter to antitrust authorities in Europe and the United States during the last month. It is not clear what, if anything, will come of the talks or how far Google is willing to push the issue.

In Europe, where Microsoft is challenging an antitrust decision against the company for its past behavior, the European Commission has already made inquiries about Microsoft's plans for Vista. Though it is now distributing Internet Explorer 7 separately, Microsoft has long maintained that its browser is part of its Windows operating system.

Google has informed the European antitrust authorities of its worry that "Microsoft's approach to setting search defaults in Internet Explorer 7 benefits Microsoft while taking away choice from users," said Steve Langdon, a spokesman for Google.

Google would not say specifically what it has discussed with American antitrust officials. "We have spoken to the Justice Department generally about our business and the importance of preserving competition in the search market," Langdon said.

A Justice Department spokeswoman declined to comment.

The best way to handle the search box, Google asserts, would be to give users a choice when they first start up Internet Explorer 7. It says that could be done by asking the user to either type in the name of their favorite search engine or choose from a handful of the most popular services, using a simple drop-down menu next to the search box.

The Firefox and Opera browsers come with Google set as the default, but Mayer said Google would support unfettered choice on those as well.

Microsoft replies that giving users an open-ended choice could add complexity and confusion to the browser set-up process, while offering a few options would be arbitrarily limiting.

Instead, those wanting to pick a new search-box option in the new browser need to click through a menu with options like "Get Search Providers," which links to a Web page with six search engines including Google and 16 "topic search" sites, from Amazon to MTV to Wal-Mart.

Hachamovitch, who led Microsoft's browser team, said MSN was not always the default search in Internet Explorer 7. When downloaded, the new browser inherits the settings from the old Microsoft browser, version 6. But the search default in that program was based on a feature called AutoSearch that Google says was not widely used.

Hachamovitch said Microsoft's user research and early reviews indicate that it is easy to change the default setting. "People seem to be OK with what we're doing," he said.

Google counters that claim with a study it sponsored that was conducted by Tec-Ed, a research firm. It found that only a third of users could master the four-click process to change the default.

Whether Microsoft's treatment of the search box will have an impact on the search market is uncertain. From an antitrust perspective, harm to competition is the litmus test, not just swinging a sharp elbow or two. There are many ways people get to search engines other than through a search box--for example, by typing google.com in the browser or making it their home page.

"Assume that everything Google says is true; the question then is whether Microsoft's conduct is really going to have a serious effect on Google," said Andrew I. Gavil, a law professor at Howard University. "Obviously, Google thinks that it will."

Google is now a rich, powerful company in its own right, far larger than the browser pioneer Netscape Communications was when Microsoft set out to dominate the market it had created in the 1990s. In 2001, after a lengthy trial, a federal appeals court held that Microsoft had repeatedly violated antitrust laws as it tried to stifle the challenge from Netscape. Later, Microsoft reached a settlement with the Justice Department that freed personal computer makers from some restrictions Microsoft had placed on their use of software and services that compete with its own products.

When Internet Explorer 7 begins to be loaded on new machines next year, computer makers like Dell and Hewlett-Packard will be free to determine what search engines and other sites they feature in the browser's Web guide and search box.

That promises to be valuable screen real estate indeed, especially the coveted spot as the preferred search engine, which the computer makers are likely to sell to the highest bidder. Google and Yahoo have deep pockets, but no one can match Microsoft's spending power. "People will be bidding aggressively to get in that space," said Hachamovitch of Microsoft. "And that's a good thing."