Microsoft is working on search integrated into the OS:
“The tools could also permit Microsoft to undermine the utility of commercial search engines such as Google by making its own software the easiest place to initiate an investigation. Spell-checkers, after all, were once independent applications too.”
This is no surprise, building search into the desktop is something that Microsoft will allways have an advantage with. But it does raise an important issue: given that documents on your hard drive contain personal and sometimes confidential data, it would be alarming to see ads based upon the contents of these documents served alongside searches results on your hard drive.
Without an ad based revenue model for desktop search, Microsoft would have to either make web search separate with a Google competitor via MSN or subsidise a hybrid web/desktop search as part of the OS. Google would be up against a free product and this is all too reminiscent of Netscape vs. IE.
The silver lining is that Google’s advertisers pay not searchers and Google ads, clearly marked as such, are a benefit to users which actually enhances the service.