From Hell's Heart I Stab at Thee; For Hate's Sake I Spit My Last Breath at Thee

Please see this disclosure related to me and Google.

It seems to me like a case of Captain Ahab and the great white whale, but let’s hope it does not end quite so badly for Bill Gates in his quest to harpoon Moby Google.

Yesterday, the Microsoft chairman said he plans to spend the last year-and-a-half of the remaining time he will be working at the tech giant drilling in on improving its online ad offerings and its search technology. Gates said this at the company’s annual Strategic Account Summit, where its big ad clients have gathered in Seattle. Microsoft, despite mighty efforts, still lags woefully behind Google in the lucrative text-based online ad market, a position that Google could further strengthen in the graphical ad market with its recent $3.1 billion purchase of DoubleClick.

In a key quote, Gates said at the event:

Well, by far the biggest thing, essentially what we’re talking about at this conference, is when people go to the Internet they have a task in mind. And it’s not just to see a list of links. This is not a ‘Hey, I’m paid to go do treasure hunts.’ They want to organize a trip, or learn about a topic, and the idea that we can capture things at that task level, and through the magic of software make that far better, and in particular when it’s where you want to buy something, that the people who want to buy something that the people who want to advertise, who want to offer up that maybe they’re the place that you want to do business with, I think we can make that far better.”

He may think he can, but it will take all the aggression and brainpower Gates is well known for to turbocharge Microsoft’s year-old AdCenter to compete better with Google’s AdWords program. One path to glory has been a rumored play for Yahoo, which would presumably give Microsoft additional heft in both search traffic and the online ad business. But that’s just not going to happen, despite it being the dream of deal-makers. And, if it did, it would be a profound distraction to both companies and would likely yield little of the synergies touted.

The real problem is the momentum of Google, which dominates search, with about 54% of the market, besting both Yahoo (22%) and Microsoft (10%), which in turn shows up in the ad haul. Because of the less-efficient results, both companies have had a harder time benefiting customers. In addition, the management of Microsoft’s online ad business has been shakier of late. Recent departures include the person who ran the operations of the online ad unit, and all the various parts of the online offerings are run by different executives.

That’s not to say the business for Microsoft isn’t growing–it is for everyone–and so it is entirely correct for Gates to focus here. It is, despite all the huzzahs thrown at Google, very early in the market, and innovations and improvements to search as well as online ad technology will win out in the end.

Gates, who is well known for persistence and being an aggressive follower, can certainly compete, perhaps even better than Yahoo can, especially because this is a technology game and not a media play.

Here’s what I would put on my to-do list if I were him:

1. Consolidate Microsoft’s search, online ads and MSN services under one roof. Right now, there are too many chefs cooking in the kitchen. Perhaps it needs to reorganize (I know, MSN and its related services have been reorganized more than an obsessive-complusive’s sock drawer) under one division, led by a strategic and powerful leader. It works, I think everyone agrees, for Microsoft’s Entertainment & Devices Division (the Zune notwithstanding), run by the peppy Robbie Bach.

2. Do not look to acquire your way into power. Microsoft needs a home-grown solution and buying Yahoo might feel like the right move, but it could bring untold nightmares. Besides the scrutiny it’ll get examining such a merger’s every misstep, it would be an admission on both Microsoft’s and Yahoo’s part of failure to compete. Besides, buying traffic might not be the game anymore–buying engagement is a more interesting path, so Microsoft might consider acquisitions that involve the consumer more.

3. And the field is wide open to give consumers a better search experience. For all its simplicity and ease of use, Google has not really innovated in its core offering to consumers of its powerful search product. Gates is entirely right that he could do better and add all sorts of improvements to search, which, for all intents and purposes, feels Neanderthal in its structure and presentation, an obvious Google weakness.

4. Be the alternative. While Gates has always been the big terrifying bogeyman of the tech field (remember when everyone was scared to look like they were competing with Microsoft?), that’s no longer the case. In fact, now everyone is frightened of the smooth, recycling hipsters at Google with their solar-powered aim to upset the order at virtually every industry they can (publishing, movies, television, advertising, newspapers). Gates should take that new image of generosity he has deservedly gotten in philanthropic circles and charm the tech and media communities. Since Microsoft has that powerful software business holding it afloat until the end of time, Gates doesn’t have to worry about going down with the ship.

Call me Ishmael, but I think Bill Gates could create an entirely new ending for this whale tale.