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Microsoft had its Google killer in 2000, but killed the project before it got rolling. Why? Worries about cannibalization.

The Wall Street Journal has an interesting tale of Microsoft’s miscues on the search front. The gist:

[Microsoft CEO Steve] Ballmer is expected in the coming months to renew his yearlong pursuit of a multibillion-dollar deal for Yahoo’s Web-search unit. But behind his push to capture a bigger piece of Google’s lucrative business lies an untold story: Nearly a decade ago, early in Mr. Ballmer’s tenure as CEO, Microsoft had its own inner Google and killed it.

In 2000, before Google married Web search with advertising, Microsoft had a rudimentary system that did the same, called Keywords, running on the Web. Advertisers began signing up. But Microsoft executives, in part fearing the company would cannibalize other revenue streams, shut it down after two months.

The Journal also notes how Microsoft missed buying Overture in 2003 too. Yahoo grabbed Overture to enter the paid search business. Toss in the failure to acquire Yahoo and Microsoft had three shots to take on Google.

It’s an interesting story for sure, but there are a few caveats:

• Even if Microsoft got Keywords rolling it’s unclear that it would have beat Google. Why? Focus. Google was focused on keyword search. Microsoft wasn’t. Cannibalization worries are always the bane of established companies–Google included. Microsoft’s gravy train was–and is–Windows and Office. Even today Web search is a distraction.
• Let’s not give Overture too much credit. The Journal makes it sound like Microsoft would have effectively competed with Google if only it had acquired Overture. Not quite. Google was already beginning to hit Overture hard. Overture was on the wane–that’s why it was selling. Also keep in mind: Yahoo failed to do a lot with Overture too. Perhaps Microsoft would have picked up some search share, but buying Overture wasn’t a slam dunk.
• The bigger picture here is that Microsoft lacks a coherent Web strategy. Microsoft was dabbling in paid search as far back as 1995. It bet on banners–an ad format Microsoft knew well. Sure there were worries about keywords eating into display advertising among Microsoft executives. However, if you zoom out Microsoft’s major problem remains–there’s not much focus on the MSN side of the house.
• You can’t count Microsoft out–even now. Ballmer was readily quoted in the Journal story. He knows he was impatient with the keyword search business and blew an opportunity. Two things here to note: First, Ballmer recognizes his mistake and doesn’t want to repeat them. That’s the sign of a good executive. And finally, Microsoft has the resources to be patient and engage in a protracted ground war. Given those facts you’d be silly not to think Microsoft might actually become a search player someday.