The defection of Dr. Kai-fu Lee to Google is the first digit to fall from the leprous giant, Microsoft-the outward manifestation of a bigger problem long in the making. That which made the software giant tall, the nourishment of cutting edge engineering, is also the chief repast of the unexpected rival in Google. The nervous tapping of billionaire fingers can be heard all the way from Redmond.

Microsoft Issues Google Challenge

Editor’s Note: How important is it that Microsoft increases its search presence? While Gates & Co. have cornered the PC market with crushing control, and will likely continue, the Internet and search will be the future center of the tech world-a world likely controlled by Google. Is Microsoft in danger of losing its command of the market? Discuss at WebProWorld.

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“We need to do this to stop Google,” Bill Gates is reported to have said to Dr. Lee referring to the lawsuit aimed at preventing Lee from working for the search engine.

This was just months after Lee sat in on a top-secret executive meeting entitled “The Google Challenge.”

So why is a software company who controls 90% of the desktop market shaking in its giant boots over a search engine start-up? Simply put, the PC is pass.

Honestly, while a near monopoly is a surefooted position in the future, that future is lackluster when most have a PC that works as well as they need it to, serving as a sufficient portal to the more important utility-the Internet.

“A new science is being defined in an area that will take over much of what we do commercially and socially,” said Usama Fayyad, chief data officer and senior vice-president at Yahoo to Business Week.

Not only is Microsoft having trouble establishing their foothold in the ever-evolving and explosive search market (currently only handling 15% of queries and declining), but the company that brought PC utility to the world is losing top executives as well as the greener future stars of the industry to Google and Yahoo, fished from Redmond’s back yard.

Business Week Online reported on the recent challenges Microsoft faces in recruiting the brightest of the computer science world.

Oren Etzioni, a professor of computer science at the University of Washington in Seattle, told them that Google has hired most of the top one-third of his search class for the past two years.

“High-profile researchers are now flocking to the search engines,” echoes Marti Hearst, associate professor at the University of California at Berkeley’s school of information management and systems.

It’s certainly no secret to Excite.com pioneer Joe Kraus, either.

“If you’re talking to someone great, they’re invariably talking to Google, and they often have an offer,” he said.

Google has been in a hiring frenzy over the past year. The company roster has nearly doubled from 2292 in June 2004 to the current 4183 full-time employees (4184, if you count Dr. Lee). In the second quarter of this year, Google hired 230 engineers, no doubt the best around.

Yahoo has been in the mix as well, taking on Larry Tesler, former VP at Amazon.com, and Prabhakar Raghavan, a first-rate authority on algorithms formerly of search-software firm Verity.

So where does all this leave Microsoft? Nervous as they experience something they’re certainly not used to-losing. As Google and Yahoo explode in the second quarter to handle nearly 9 billion queries and 69% of the search world, MSN had to swallow a 4% loss in search queries.

Microsoft will have to be extra aggressive in the future to secure a position, and employees.

As mentioned by a former professor in this forum thread pointed out by SearchEngineRoundTable, the competition is stiff.

“Every semester you have couple hundred students in your courses and most of them are average – the typical student. A small number are very bright… and maybe one or two will be absolutely off the scale in their intelligence, work ethic and driving vision…. a few of those will be inclined towards very practical problems… then a tiny fraction of those will be highly interested in information technologies. In an entire teaching career you might see a couple who might fit what it takes to work and perform well at one of these companies.

“The very smart companies come to campus and ask faculty: Who are these students? These companies pay well – perhaps double what the typical company would pay – and these highly motivated students will happily go work for them. These companies are very astute because they get 5x the productivity for just 2x the cost. But more important is that they get 100x the vision and innovation at the same time.”

It seems as though Google is soaking its offices with the best of the best from colleges, other tech companies, and now a high-ranking suit from Microsoft.

In a court filing regarding the defection of Dr. Lee, Google painted the picture of a software company very nervous about losing its top executives to other, more cutting edge companies, and accused Microsoft of trying to intimidate its employees into staying.

“Kai-Fu, Steve (Ballmer) is definitely going to sue you and Google over this. He has been looking for something like this, someone at a VP level to go to Google. We need to do this to stop Google,” a quote the Google legal team attributes to Bill Gates.

So far, the case over Dr. Lee has gone well. Microsoft won the first round in court, blocking Lee from beginning his new duties as President of Google China until at least Sept. 6, and possibly until after it is settled during the trial set for January 9. Google answered with a countersuit in California, where non-compete clauses are not considered under California law.

And so, desperate times call for desperate measures as Microsoft eyes the “Bridge Out” sign at the end of the road. Money will be poured into litigation, an all out fight for search supremacy, and a bidding war for the best techies falling out of dorm room beds and into a search chair. “The Google Challenge” will be a difficult fight.