• San Jose Mercury News, Monday, January 15, 2007 10:30 AM

On his blog, search specialist John Battelle says stories like today's "don't underestimate Microsoft" piece are "starting to ring a bit hollow." While that's the parting message of the newspaper's report, the meat of the article points out that the more Microsoft races after Google in its Web business, the more the search giant seems to pull ahead.

Microsoft didn't exactly have a dormant 2006. In terms of Web advertising revenue, possibly. But in terms of activity, it certainly did not. Just in case you missed it, Microsoft unveiled a widely praised 3-D mapping application called Virtual Earth, three new search services, a new portal, online video, a new social network and most importantly, a new ad system.

Some of these were seen as nice updates, additions and innovations, but none, as the article points out, did anything to make the number of visitors to Microsoft's sites move. In fact, the amount of times its visitors spent on Microsoft sites has dropped, while ad sales have fallen. Meanwhile, we all know how Google is doing.

If the "don't underestimate Microsoft" argument carries any weight at all, one has to look at the amount of cash the software giant has stockpiled ($30-plus billion), even though its (relatively modest) Web investments have fallen flat. With that kind of cash, it could easily buy Yahoo or AOL if it went on the market.

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