Business Week Online just put out an article about the troubles that Microsoft is having in capturing search market share. According to the story, Microsoft had a search market share in February of 2005 of 14%.
Two years later that share has dropped to 9.6%. In the same time period Google's market share went from 46% to 56%. Clearly things have gone in the wrong direction for Microsoft. The article also details the changes in Microsoft's executive team, and the trouble they had with re branding everything to Live Search.
These have surely contributed to the problems in growing their market share, but I believe the major problem has been the continued excellence in execution by Google. This has just left very little room to capture new users.
I think people should be careful though to not rush to the conclusion that Microsoft is done. All signs are that Microsoft recognizes that there is no more strategic area for them to focus on. In addition, Microsoft is a company with huge cash reserves. While it may be frustrating to have to be patient, they do have the ability to do just that.
In addition, an increasing number of innovative tools are being implemented by Microsoft within the MSN AdCenter Labs. I wrote about one of these recently, the MSN Search Funnels, which allow you to see what terms people search for both before and after your keywords. It's an incredibly cool tool.
This is but one example of innovations from Microsoft that show that they are going to keep pushing new stuff out there. And this really is the key for them - to show technological leadership through the implementation of tools that makes things easier for advertisers, publishers, and most importantly of all, end users. Don't count Microsoft out yet.