Microsoft takes it slow but steady with Israel

Microsoft EMEA Online Services Group VP John Mangelaars talks to "Globes" about Jerry Seinfeld, Yahoo!, and the new MSN Israel.

The Google-Yahoo!-Microsoft triangle continues to make headlines. The three companies oversee virtually every aspect of the Internet market, all three have strong e-mail and various instant messaging services, popular search engines, and in the case of Yahoo! Inc. (Nasdaq: YHOO) and Microsoft Corporation (Nasdaq: MSFT), thriving portals.

Google Inc.'s (Nasdaq: GOOG) unchallenged domination of the search engine market led Microsoft to take drastic measures over the past year in a possibly last attempt to challenge it. These measures include the intimidating offer to acquire Yahoo! for more than $40 billion, the attempt to win over users by paying them to use the Microsoft LiveSearch search engine, and a heavily budgeted ad campaign starring Jerry Seinfeld, who was paid $10 million.

Almost all of these efforts appear to have failed. Yahoo! rejected Microsoft's offer, the Seinfeld ad campaign was taken off the air after only a brief run, which the industry judged a failure, and the attempt to buy surfers has so far not been able to boost Microsoft's share of the search market.

Microsoft EMEA Online Services Group VP John Mangelaars will not admit that the ad campaign was a failure. He told "Globes" emphatically, "It didn't fail. That's simply incorrect. We wanted to get people to talk, and we succeeded. Seinfeld has a very unique style, and you have to understand that we asked him to do exactly what he did. We didn’t pull the ad campaign because of its ratings - this was planned in advance."

Nevertheless, the ad campaign was pulled after just two weeks and is widely considered a failure. Mangelaars said, "We adapted Seinfeld's style to the campaign, which is precisely what we wanted to achieve. It's true that it would have been nice if people had said, 'Wow, what a great ad', but that wasn’t the goal. We think that the campaign was very successful."

"Globes": OK. Let's say that the campaign was a success. But you are still number three in the search market, and your presence in Israel is negligible.

Mangelaars: "In order to boost our position in the Israeli market, we must do a number of things: create a good product in Hebrew; make it possible to buy our products online; get people who visit our portal or who use Messenger to also use our search engine; and make all of our products more attractive."

Meanwhile, you seem to have foregone the Israeli search market, and conceded it to Google.

"We still have to think how to work in Hebrew. Hebrew is a very difficult language, so you have to invest a lot of resources in it. Microsoft was always very active in Israel. We have a development center, and we're continuing to invest in the Israeli market."

Mangelaars, however, is not prepared to commit to a date when the Israeli surfer will see a successful Hebrew-language search product. "I want to be fair, and not make false promises. It's first important to build our standing in the portal market and our Messenger, in order to attract Internet users. Only then can we improve our search product."

The relaunch of MSN Israel

As far as an Israeli portal, Microsoft has a long way to go. MSN Israel has undergone a shake-up. Its general manager, Shraga Mor, left the company, there were waves of well-publicized layoffs, and a restructuring of its ownership structure resulted in Microsoft fully owning the company for the first time. Despite these changes, which give Microsoft exclusive control on the design of the portal, it seems that that the days when MSN Israel was the homepage of many Israelis will not return.

Mangelaars says, "We realized the importance of owning our assets in Israel. We have considerable experience with foreign portals, and I'm sure that the Israeli portal will also be a success. We have a global platform, and we aim to adapt it to the Israeli market."

Mangelaars is unsure whether the goal is to return to a time when MSN Israel was the portal of almost every Israeli user. "The younger generation is used to doing several things in parallel, which is why our goal is to create a higher involvement on the part of the surfer," he said.

In the wake of the many changes at MSN Israel, the portal will be relaunched this week at a press conference at which Microsoft will also present its new online division. This division will be responsible for the company's Internet activity in Israel, including the new portal and the marketing of Messenger, Hotmail, search, and other services from the Windows Live family.

Everything, but more cautiously

Mangelaars' responsibilities include the unit that markets advertisements for Microsoft's online assets. He admits that the global financial crisis is affecting online advertising. "We see some pressure, but the good thing is that we have considerable experience and we've demonstrated stability in different times. We're seeing our share of the advertising pie continue to increase. Obviously, it's not easy, and the pressure has grown, but we're continuing to invest in the development of new products in Israel, the expansion of our advertising network, and we've even set up a new sales team in Israel."

This last step is unique, since it belies the mass layoffs at many Internet and media companies around the world. Yahoo! has sent home 1,500 employees. Mangelaars said, "We're doing what we must to increase our business, but more cautiously."

In your opinion, what will be the general repercussions of this crisis?

"The software industry is very mature, but while the online industry is much more creative, it is much less mature. That is why I think that this might be a successful moment for the online industry. It can learn business management, and mainly mature. Start-ups will have a tougher time, but there is still money for good ideas, and there will be more high-quality companies at the expense of experimental companies."

As for the ongoing Microsoft-Yahoo! saga, in which just last week, Yahoo! founder and CEO Jerry Yang announced that the company was willing to renew negotiations with Microsoft.

Mangelaars noted, with caution, "We saw synergy between the two companies, but it didn’t work. The idea behind this offer was to raise our presence and to link up the successful engineers working at both companies so they could work together on developing products."

Which is more likely, an acquisition or collaboration in the search field?

"I don’t know, but even if I knew, I wouldn’t say, or I'd go to jail."

The Google-Yahoo! cooperation agreement failed. Are you pleased?

"You'd be surprised, but there are other things that make me happy in my daily life. However, obviously that deal would not be good for the industry. It's not good for one company to set prices and create entire barriers for the industry. Everyone understood this and opposed the deal. Cancelling the deal was the right thing to do."

Published by Globes [online], Israel business news - - on November 10, 2008

© Copyright of Globes Publisher Itonut (1983) Ltd. 2008

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