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Bing has a sixth of the market, but is losing loads of cash

It started off simple -- "beat Google".  We'll transform Microsoft into an "industry leading, Internet-wide advertising platform" pitched Kevin Johnson.

Today Mr. Johnson is no longer with Microsoft Corp. (MSFT).  He's CEO of Juniper Networks, Inc. (JNPR).  But his $6.2B USD gamble into display advertising firm aQuantive is back in the headlines after Microsoft took a $6.2B USD writeoff on the struggling pet project.

Microsoft spent the $6.2B USD to acquire aQuantive in 2007, a bold bid that greatly expanded its small stable of search-tied online ad-offerings.  Since the acquisition, though, the road has been nothing but rocky.

To be fair, Microsoft has grown Bing from an 8.4 percent market share to a 15.4 percent share, according to ComScore.  But the problem is that gain has been less of a grab and more of a resource transfer, as it came at the expense of Yahoo! Inc. (YHOO), the floundering search veteran who Microsoft paired with back in 2009.

The problem is that Microsoft needs to reach a "tipping point" in order to lure large advertising clients to its service.  Analysts have speculated that the magic number is around 25 to 30 percent of the market.  But that would likely require Microsoft to scoop double digits of market share away from Google Inc. (GOOG) which has hardly budged from its 60+ percent dominant position.

Bing search
Bing is still struggling to reach its "tipping point" and achieve profitability.

Search in theory works something like a toll road.  You pay a certain amount to route traffic to you -- expenses which range from the cost of server farms to the cost of advertising to build customer awareness of your brand name.  You're repaid when people visit your search homepage and click on ads -- text or graphics -- that are displayed amongst the search results.  Those clicks are compensated on a unit basis by advertising clients either directly (as in Microsoft's case) or through third parties.

The idea is to make your advertising dollars outweigh your "traffic acquisition" and hosting costs, generating a net profit.  Google is the master of that game.  Microsoft, is unfortunately on the wrong end of the equation.

Search is hurting Microsoft financially, burning away the windfall profits of its operating system division.  Losses hit $1B USD per quarter last year, but have slowed to a slower bleed of $2B USD in the last 12 months.  

The company glumly surmises, "While the aQuantive acquisition continues to provide tools for Microsoft's online advertising efforts, the acquisition did not accelerate growth to the degree anticipated."

Search is an expensive hobby, but Microsoft plans to stick with it for now, in hopes of reaching that ever elusive profit cloud.  But one has to wonder how profitable Microsoft might be, if it just swallowed its pride and dumped the search baggage.

Source: Microsoft

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By Tony Swash on 7/4/2012 10:46:00 AM , Rating: 1
It's not just Bing and the issue of search that confronts Microsoft. The next two years could be the most critical in it's entire history as the whole industry moves through an inflection point and into a entirely new conjunction of technologies. What is happening is the ground is shifting upon which Microsoft built it's empire of Windows. Microsoft and Windows is being disrupted.

For the first time since the dawn of the PC era Microsoft's operating system will no longer be the dominant and largest computer operating system, for the first time Microsoft will have to compete as just one system amongst many, as just one system with no advantages of incumbency, often as just one of the smaller players. This is new terrain for Microsoft and it will involve radically rethinking it's business strategy, as with it's move in to the PC hardware business with Surface, in a risky process with unforeseen outcomes as Microsoft is forced to disrupt it's own business.

How well and adeptly Microsoft manoeuvres in the next couple of years could determine it's fate, whether it remains a player or slips into a slow decline into irrelevancy. I wonder if Ballmer and co can pull it off?

This article lays out nicely one of the many the seismic shifts that are occurring.

By aurareturn on 7/4/2012 3:25:03 PM , Rating: 1

You are correct which is why Pirks' statement isn't as bad as the negative votes it received.

Windows is not the future. It's the cloud and the internet. A lot stuff are already and will be replaced by the cloud. Most people just need a browser nowadays.

So if MS is failing on the internet and Google is succeeding, then MS will surely die of a slow death. If MS can't compete with Google and can't compete with Apple, then there is nothing for them.

By Pirks on 7/6/2012 1:44:43 AM , Rating: 2
This is new terrain for Microsoft
Oh yeah, like MS was never fighting against heavy hitters, like MS never rose from a tiny company into a current global megacompany fighting off stiff competition every year. You are sounding so dumb at times Tony, your Mac zealotry pushes you way too far. You sound like MS was given Windows XP from the start, right in 1975 and of course MS was always a monopoly, even in 1975 eh? Microsoft was never competing and they were always a monopoly right? So it's like Netscape was killing itself and handing IE monopoly status just because Gates asked them politely right? Oh Tony, your zealotry and blindness to facts makes me so happy sometimes, I know that since you are a zealot then we should not take your or asymco's words as a final truth. You have your agenda, asymco has an agenda, and your words about MS being always a monopoly and unable to compete double prove all this.

Hence I'm not worried about MS at all, because I know the history and I was there when MS was tiny, young and growing fast. I don't believe MS lost their early mojo, their own bold experiments with their own hardware and their willingness to screw their OEMs quick _double_ prove that.

I just visited an MS retail store, looked at their selection of laptops and other stuff, played with some of them in the store, checked out cool new Samsung 15" Ultrabook, something Apple will never be able to release for such a great price. Man, MS is onto something, they expand their retail stores pretty quick these days, and you Mac zealots cast a blind eye to that. You know what? I love the fact that asymco has NO idea this is happening. I will enjoy the sight of him caught pants down, heheee. You just wait.

"Folks that want porn can buy an Android phone." -- Steve Jobs

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