Microsoft deepens Facebook ties in Web search battle

MOUNTAIN VIEW, Calif. Thu Oct 14, 2010 6:46am IST

A man passes by the Microsoft booth at the International Telecommunication Union (ITU) Telecom World 2009 exhibition in Geneva October 5, 2009. REUTERS/Valentin Flauraud/Files

A man passes by the Microsoft booth at the International Telecommunication Union (ITU) Telecom World 2009 exhibition in Geneva October 5, 2009.

Credit: Reuters/Valentin Flauraud/Files

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MOUNTAIN VIEW, Calif. (Reuters) - Microsoft Corp(MSFT.O) deepened its ties with social networking company Facebook on Wednesday, bolstering its fledgling Bing search engine to catch up with Google Inc(GOOG.O).

Starting on Wednesday, Bing will take data posted on Facebook -- such as users' "likes" or preferences -- and use that information to provide more relevant search results.

The tie-up between the world's largest software company and the largest social network potentially pushes Web searches -- one of the Internet's earliest activities -- in a new direction.

It underscores the growing competition between Facebook's 500-million member service and Google, whose search business has dominated the Web in past years.

"Google owned the old Web, the content-centric Web. Facebook has early leadership in the new Web, the social web," said Ray Valdes, an analyst at industry research firm Gartner. "This is the real long-term conflict. Microsoft in that sense, is a secondary player in this new battle."

Analysts said the new social search features are unlikely to immediately boost Bing's market share -- which has been creeping up since launching last year -- but noted that the deal allows Bing to differentiate itself, with access to information that Google doesn't currently have.

Facebook executives said they hoped that other search engines would also use the company's social data in the future, but Chief Technology Officer Bret Taylor said that Facebook was only working with Microsoft for the time being.

"Right now Microsoft is such a close partner to us that for the foreseeable future I think we just will be working with Microsoft," said Taylor, in an interview following the announcement, which took place at Microsoft's Silicon Valley offices.

Microsoft invested $240 million in Facebook in 2007, giving it a 1.6 percent stake. The two have forged various business collaborations over the years.

A Google spokesman said in an emailed statement that the company welcomes competition that helps deliver useful information and expands user choice, and that having strong competitors benefits Google by making the company work harder.

Microsoft, the world's largest software company has stepped up its efforts within its online services division -- which lost $2.3 billion last fiscal year -- to challenge the dominance of Google, the world's largest search engine. Its shares closed up 2 percent at $25.34 on the New York Stock Exchange.

The Facebook data provides important "signals" to help refine search results, Microsoft Online Services Division President Qi Lu told reporters.

As part of their agreement, Bing will be able to access users' publicly available Facebook profiles and their "likes" on the social networking service, and deliver search results tailored to individual preferences.

"The thing that makes Microsoft a great partner for us is that they really are the underdog here," Facebook Chief Executive Officer Mark Zuckerberg told reporters at Microsoft's Silicon Valley offices. "Because of that they are in a structural position where they're incentivized to go all out and innovate."

Microsoft introduced the overhauled version of its search engine last year, and forged a 10-year partnership with Yahoo that merges the companies' back-end advertising systems, offering marketers a larger audience.

Google remains the undisputed leader in search with 66.1 percent of the U.S. market in September, according to research firm comScore. Yahoo is second with 16.7 percent and Bing third with 11.2 percent.

"It's good that they are finally trying to address these shortfalls in Web presence and mobile," said Kim Caughey Forrest, senior analyst at Fort Pitt Capital Group, referring to the Facebook announcement as well as the launch of new phone software earlier this week.

"But I'm not sure when it's going to translate into dollars. As an investor that's really what I want to know. What's it going to do to your bottom line?"

(Reporting by Alexei Oreskovic; editing by Carol Bishopric)

(Additional reporting by Bill Rigby, writing by Edwin Chan)

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