Microsoft Keeps Trying, and Failing, with Bing
Microsoft's last earnings report revealed three plump cash cows: $3.6 billion operating income for the quarter in the Office division, $2.9 billion in Windows, and $1.8 billion in Server and Tools, not to mention that tidy $32 million profit in Entertainment. Yet there was one absolute disaster: the $728 million loss for the Online Services Division.
Every time this happens, there's a hue and cry about splitting off the Bing gang and letting them sail in a different direction. It happens a lot. Microsoft started reporting its online financial vagaries in fiscal year 2002, when the effort was known as MSN. Since then, Microsoft has admitted to a net loss of almost $9 billion. This past quarter, the Online Services Division took in a mere $662 million in revenue, but ended up spending almost $1.4 billion.
Let me put that in perspective for you: According to ComScore, in June 2011, Microsoft and Yahoo sites had a combined U.S. Explicit Core Search market share of 30.3 percent. Three months earlier, in March, ComScore says the combined market share ran 29.8 percent. That's an increase of 0.5 percent from the last month of the first quarter of the year to the last month of the second quarter of the year.
I had to look at U.S. search market share because Bing is going absolutely nowhere in the international search market. Research firm StatCounter shows the total market share worldwide for Yahoo and Bing runs between 6.8 and 8.3 percent -- and the combined share has taken a nosedive from 8.15 percent to 6.77 percent between March 2011 and June 2011. Bing alone, according to StatCounter, has tumbled from 4.21 percent to 3.24 percent internationally in those three months.
So looking at ComScore's numbers, Microsoft's Online Services Division has increased the number of U.S. searches more or less attributable to its efforts (Yahoo and Bing) by about 0.5 percent in the past quarter -- roughly 85 million searches more in June than it would've had if nothing had changed. And for this Microsoft spent $728 million? Even if Microsoft had 85 million more searches in April and May than they would've had otherwise, that still works out to about $3 a search.
Here's another way to look at it. Right now, Microsoft controls 30 percent of the U.S. search market, give or take. It's pulling in $662 million in quarterly revenue. To boost its keyword ad rate and overcome that $728 million quarterly shortfall, Microsoft would have to magically move its market share to what -- 50 percent? 70 percent?
I can hear the spluttering from Redmond all the way out here: "But but but ... Microsoft gets so much more out of its Online Services Division than mere searches."
Well, yes, I suppose there are other revenue-generating benefits to throwing $728 million per quarter into a bottomless pit. I've seen integration with other products mentioned as a raison d'être for the huge losses in the Bing unit. I don't buy it. Microsoft has lots of resources plugging away at Azure, Office 365, and other cloud efforts. But the vast majority of those resources sit in other business units, not OSD.
Maybe Microsoft can pull this one out of the fire. Perhaps there's a strategic linkup with Baidu in the offing that will fill Redmond's coffers full of yuan. It's hard to say.
This much is sure: Microsoft is paying through the nose to buy U.S. search market share. It'll take a tectonic shift in search habits to put a dent in that $728 million quarterly deficit. And recouping the lost $9 billion? Don't bet on it.
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