Microsoft, Google in software row

DETROIT (Reuters) -- Microsoft Corp's Bing search engine won more market share from rivals last week, according to new industry data released on Wednesday, but still trails Google Inc and Yahoo Inc.

Challenging market leader Google -- which in turn is looking to break into Microsoft's core software market -- is a long-term project, said Microsoft chief executive Steve Ballmer.

"We have had some very good initial response," Ballmer said at a conference in Detroit. "I don't want to over-set expectations. We are going to have to be tenacious and keep up the pace of innovation over a long period of time."

Microsoft (MSFT, Fortune 500) grabbed 12.1% of U.S. Internet searches for the work week June 8-12, according to data released by industry tracker comScore earlier on Wednesday.

That is up from 11.3% in the June 1-5 period -- the week in which Bing was launched -- and up from 9.1% the week before that.

For comparison, Google (GOOG, Fortune 500) got 65% of U.S. searches in May, the last full month for which figures are available, followed by Yahoo (YHOO, Fortune 500) with 20.1% and Microsoft with 8%.

Analysts and investors are keenly awaiting data for all of June to see if Microsoft can hold onto early gains.

Ballmer acknowledged the tough task of beating Google, which he referred to as "a big dog competitor".

The world's largest software company has long been determined to play a major role in the lucrative Web search market after watching upstart Google take a stranglehold.

At the same time, Google is looking to take advantage of its popularity to launch software that competes with Microsoft's, which has created a new source of tension between the two companies.

Microsoft ratcheted up that tension on Wednesday by claiming that Google's new Apps Sync for Microsoft Outlook software -- which allows users to share data between their Outlook e-mail and Google's online offerings -- disables a key function in Outlook.

"The installation of the Google Apps Sync plugin disables Outlook's ability to search any and all of your Outlook data," Outlook product manager Dev Balasubramanian wrote on a Microsoft blog. "It is also important to note that uninstalling the plugin may not fix the issue."

The problem, though relatively unimportant to users, represents a crucial struggle between Microsoft and Google for e-mail customers.

Google's new product allows business users to continue using Outlook for email and other tasks, but the back-end functionality and data storage moves to Google, instead of residing on a company's internal servers running Microsoft software.

Google acknowledged the Outlook problem identified by Microsoft, and several other issues where its software does not mesh well with others.

"We're working with Microsoft and other partners to help fix these issues and support additional Outlook features like multiple calendars," said Google Apps senior product manager Chris Vander Mey in a blog post. "We'll keep you posted on our progress."

Microsoft shares closed up just less than 1% at $23.68, while Google's fell 0.2% to $415.16, both on Nasdaq.