Echoing an economic reality that also hampers its Xbox video gaming business, Microsoft's Bing search engine has cost the company over $5 billion over the past several years. And although many people feel that the software giant can never recover that expense, Microsoft this week said it's "confident" that Bing will be not only successful but profitable.
"As soon as we close and implement the Yahoo! deal, we have achieved a milestone, \[and\] for advertisers, we are a credible number two \[in the marketplace\]," said Microsoft Senior Vice President Yusuf Mehdi. "The goal is about share gain. If we grow share, we will grow our way into profitability, and we have confidence we can do that.
"There's no question we intend to make a profit," he added. "There's a huge return in the search marketplace that can more than make up the investments we've put in to this point."
(Mehdi currently runs Microsoft's online audience business and is directly responsible for Bing and the MSN web portal. His comments came during an interview with Reuters this week.)
Although Bing has made modest but steady gains this year—it now controls 10.7 percent of the United States search market, up from 8 percent when it was called Live Search through mid-2009—it also trails market leader Google (with 66 percent share) and number-two Yahoo! (with 17.3 percent) by a wide margin.
Mehdi says that simply combining Bing and Yahoo! will yield a more competitive marketplace and achieve what Microsoft's standalone search service can't: 30 percent share. (OK, it's closer to 29, but whatever.) "At 30 points we are now a credible option, so that number matters," Mehdi told Reuters. "The nice thing is we can say \[to advertisers\] you can be close to 30 percent share in one easy buy. That 30 percent carries a lot of weight in the marketplace."
A combination of Bing and Yahoo! would indeed improve Microsoft's ability to compete in this market, but it's unclear whether it would do much to blunt the market leader. Google has actually improved its share of the search market over the past seven months, by 0.7 percent. That's tiny even by Bing standards, but it's still a gain. Assuming the Microsoft/Yahoo! deal goes through, the software giant will need to address that trend next.