Microsoft CEO Steve Ballmer announced over dinner at the Churchill Club, Silicon Valley that the company is set to undertake a five-year task aimed at improving its position in the online search engine industry. As we all know, Microsoft’s online unit is losing money and only has 9 percent of the search market, compared to Google’s 70 percent. Still Microsoft will continue to put up to 10 percent of its total operating income (read: billions of dollars) in its efforts to up its share. It just might work.

Optimistic Microsoft

Ballmer pointed out that only Microsoft maybe in a position to give Google “any real competition” in the online search industry but he clarified that the company is in no rush to do so. He also disclosed that Microsoft is willing to spend a lot of money in preparation for gaining a more sizeable share of the search engine market. According to Ballmer, Microsoft needs to focus work and expend resources on reinventing the search business model. “You don’t brute-force your way into a market. You only make great strides when you redefine the category for the user,” Ballmer added while pointing out that such endeavor would take time.

Keeping mum

However, Ballmer refused to disclose further information regarding the specific steps that Microsoft would take, except to say that the company would discuss a new secretive cloud computing initiative called “Project Red Dog” at next month’s Microsoft Professional Developer Conference. This Red Dog is said to be similar with Amazon’s cloud computing Elastic Compute Cloud program.

There’s an interesting discussion about this here and here.

Balmer couldn’t’ talk much about Project Red Dog right now, so we’ll have to wait about six weeks to get a clearer picture of how this new project can affect search engine optimization, if it will. Meanwhile, let’s try and answer some theoretical questions. Do you think that Red Dog will be a successful answer to Amazon’s web services and Google’s App Engine? Do you think that Microsoft’s ambitions to get a bigger share of the search market can shake up traditional SEO?