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Microsoft sees only two players in Web arms race

Microsoft  and Google are the only two companies with pockets deep enough to fight the arms race for Web audience market share, the head of Microsoft’s Internet arm said on Thursday.

Web pioneer Yahoo may end up on the outside looking in on the coming competition for online advertising dollars, said Steve Berkowitz, head of Microsoft’s online services group, who recently left a smaller rival.

In an interview, Berkowitz said companies must have the financial might to attract and retain a Web audience, lure advertisers with information about their audience and build powerful data centers.

Microsoft’s online services group, formerly known as MSN, currently trails Yahoo and Google in the lucrative areas of online search. The unit is losing money even as its competitors generate rich profits from online advertising.

Berkowitz said the key for Microsoft to close the gap on rivals is to get the hundreds of millions of users who use its e-mail and instant messaging to visit more often, stay longer, and use other services like Web search or social networking.

It will also require heavy investment that only the largest players can afford. Microsoft can rely on the cash spun off by its lucrative desktop computer software business, while Google’s advertising business generates hefty profits and its stock enjoys the benefits of a high valuation, he said.

“You have to be able to invest at a level that only right now two companies in the world can invest at and that’s Google and Microsoft,” said Berkowitz, who joined in May after quitting as CEO of IAC/InterActiveCorp’s) Ask.com.

The Microsoft executive knows the consequences of not having enough scale on the Internet. Ask drew rave reviews for its search technology but had trouble attracting users.
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only two players in Web arms race

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