I can’t believe I’m saying this about Microsoft. After all, before Google, Microsoft was the omnipresent tech company renown for its business smarts… its challenging recruitment program…. its propensity to buy up innovative technologies and companies… and its dominance over computing…

Microsoft is still incredibly successful and making loads of money… but it just can’t seem to compete in search. And it seems to be losing ground to the open source movement - from Mozilla on the browser front, to OpenOffice on the office software front.

So what does a company do if it has too much money and not enough brains to beat its competitors or keep them at bay?

Well, firstly, it tries to buy those competitors. Like the second best search company e.g. Yahoo. Or an up and coming semantic search engine like Powerset.

But if that doesn’t work or if promising technologies and tech companies seem thin on the ground (at least to the folks in Redmond) then it… buys back its own shares. Well, that’s the view of a top Wall Street analyst, who believes Microsoft will spend as much as $20 billion buying back its own shares over the next three months.

Of course, companies typically buy back their own shares when they see value in themselves that other investors don’t… that could be a good thing (they know something we don’t) or a bad thing (self-delusional)…

Source: Todd Bishop, “Cash-rich Microsoft may buy back shares”, SFGate, August 11, 2008

If Carl C. Icahn seizes control of the board of Yahoo, Microsoft’s purchase of the No. 2 Internet search company could be back on the agenda.

In co-ordinated statements released to the media over the weekend and on Monday respectively, Mr Icahn and Microsoft signaled that the companies would renew acquisition talks if Icahn wins his proxy fight and takes control of the board.

So what’s standing in Icahn’s way? Yahoo’s largest investors need to vote on whom they think should remain on, or join, the board. Should the vote go Icahn’s way the current board will be replaced by Mr Icahn and his supporters, while Yahoo-founder and current CEO, Jerry Yang, will be out the door.

Microsoft’s interest in buying Yahoo - or simply its search technology - coupled with its plans to purchase semantic search engine Powerset, seem only to highlight the company’s frustration with being a distant third in both the search and search advertising markets.

Source: Miguel Helft, “Microsoft Is Icahn’s Ally in Pursuit of Yahoo”, The New York Times, July 8, 2008

Microsoft plans to spend just over $100 million to acquire semantic search engine company Powerset.

Powerset’s semantic or “natural language” technology aims to deliver search results based on what search engine users are really looking for, due to making meaningful connections between the words typed in by such users.

While Google is said to be using semantic technology to a limited degree, it has generally dismissed Powerset’s approach. Consequently, Google’s search results are still mainly based on the individual words typed in by its search engine users.

With the popularity of Microsoft Live lagging significantly behind Google and Yahoo, Microsoft’s purchase of Powerset is undoubtedly a bid to increase its share of search, based on delivering better quality search results. However, many believe that while theoretically appealing, semantic search is practically impossible to implement in reality.

Source: Matt Marshall, “Microsoft to buy semantic search engine Powerset for $100M plus”, VentureBeat, June 26, 2008