Microsoft may hire Google for Web searches overseas

Microsoft Corp, which has yet to write programs that find advertisers' Web sites, may hire Google Inc to do such searches for its Internet service outside the US and UK, a person familiar with the companies' talks said.

Microsoft, the world's largest software company, now uses Yahoo Inc for so-called paid searches in the US and UK By charging companies for prominent placement in search results, Microsoft's MSN Internet unit earned its first profit in the quarter ended in September after billions in losses the past eight years. Microsoft declined to quantify the losses.

Paid searches are "a new revenue stream for Microsoft and it's a very high margin revenue stream," said Greg Tuorto, an analyst with Guardian Park Avenue Funds, which manages US$3.5 billion and owns Microsoft shares. "The pay-for-search part of the economy is growing pretty aggressively right now."

Revenue from paid searches will increase to almost US$7 billion worldwide by 2007 from about US$2 billion this year, according to a forecast by Safa Rashtchy, an analyst at US Bancorp Piper Jaffray who follows Internet companies.

Redmond, Washington-based Microsoft began talking to closely held Google after Overture Services Inc, the company Microsoft used for paid searches, agreed to be bought by Yahoo in July, the person familiar with the talks said. Google has considered an initial public share sale that analysts have said may value the company at as much as US$20 billion.

Microsoft stuck with Overture for searches in the US and U.K. instead of switching to Google. Microsoft still hasn't found a partner for other regions and may use Google, the person said.

Microsoft's MSN has always offered users the ability to search for Internet sites based on keywords. Those unpaid searches generate little revenue.

Both Google and Yahoo are Microsoft competitors. Microsoft also cooperates with both companies at the same time, Rosoff said.