Microsoft Loses $6.2B USD on Internet Advertising Bet
July 3, 2012 6:54 PM
comment(s) - last by
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. (
). He's CEO of Juniper Networks, Inc. (
). 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!
), 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. (
) which has hardly budged from its 60+ percent dominant position.
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
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
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.
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RE: I'm afraid MS won't be in the game long if it were to dump Bing
7/10/2012 11:20:36 AM
You make some good points. I don't necessarily agree that Microsoft will kick the bucket without Bing. After all, most companies don't have a search engine and do just fine. However, I think we agree that killing off Bing, especially given its growth, would very negatively impact the company. Microsoft can't expect to maintain their current status going forward without delivering a compelling internet service platform. Bing provides a nice tie in to such services.
Unfortunately, your overzealous ripping on Mick (deserved or not) causes many to ignore these points, downrate your post to oblivion, and thereby prevent further reading by many visitors. I propose that you present the flaws in the article as you see them, back them up with facts and logical reasoning, and let others decide based on your arguments how many brain cells Mick (or anyone else) has.
"Young lady, in this house we obey the laws of thermodynamics!" -- Homer Simpson
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