The news that Microsoft is offering financial incentives to enterprise customers that adopt its new Live Search engine seems to be about data.

As part of the arrangement, companies using Live Search agree to send search data (presumably anonymized) to Microsoft, which should help Ballmer's boys figure out how to optimize the platform -- and maybe even make some money from it. That kind of continuous data flow has worked well for Google, which offers users advanced features in exchange for sharing their data when they install the Google toolbar.

But I suspect that this move isn't about search per se. Let's be realistic: Microsoft isn't going to unseat Google, which holds a massive lead in the search market. This is more about gaining a toehold for the fledgling Windows Live services. Think of Live Search as a gateway drug that will give potential customers a taste of a whole new MS portfolio of products.

Live Search, though it can be run in standalone mode, is part of the Windows Live platform of online apps and services. You can personalize it (see MyYahoo) and use it to search your desktop (a la Google Desktop or the search that's built intoVista). Many users will also be tempted to run their search from the Live Toolbar, which is offered as part of the larger Windows Live ensemble. It's only a small step from Live Search to getting the whole shooting match.

So this is about paying for exposure, which ultimately can lead to habituation. Microsoft's engineers have built a passel of handsome, modern looking Web-based applications. It even has "gadgets" (an answer to OS X's widgets). These offerings may not be best of breed -- going up, as they do, against Google's online office apps -- but familiarity is a powerful force. People tend to stick with whatever makes them comfortable.

The hosted online applications business could ultimately dwarf the search market, since people use search on occasion, but they live in their apps. MS has made a fortune selling desktop apps; if even some of that user base moves to the Web, Microsoft must be there to capture the business. Live Search is just one more way to lead them gently to that promised land.

Posted by Steve Fox on March 15, 2007 06:38 PM