In my most recent article, I made the following statement in the comments when discussing the importance of Microsoft (MSFT)'s new OS, Windows 8, to the company as a whole.
“I believe that as a long term strategy, this is the best way to drive Win8 phone and tablet adoption - which becomes a game changer for other MSFT businesses along the way, namely Bing (take a look at Bing market share on Win8 devices vs. the overall PC universe - the data is a bit questionable, but I've seen numbers indexing at 2-5X above the overall PC space for Win8 users).”
I think this is a point that’s often overlooked, and deserves further discussion. First, let’s take a second to consider what the opportunity might be if Microsoft can simply breakeven in search (using the Online Services Division as a proxy for Bing):
|Fiscal Year||Operating Profit (Loss)|
In the most recent fiscal year, the company took a $6.2 billion impairment charge related to aQuantive; adjusting for that charge, the operating loss for OSD was $1.9 billion. With that said, the point is clear – this has been a big headwind to Microsoft’s underlying profitability over the past three years, with a $2 billion loss equal to a headwind of roughly a quarter per share.
Let’s also take a look at another measurable and relevant factor for Bing – market share (from Comscore):
|Year End (Dec)||U.S. Market Share|
There has been slow and steady progress on this front. As I noted in the above comment, I believe the release of Windows 8 will go a long way in causing that trend to continue – and likely accelerate.
The reason becomes apparent when you boot up a machine running Windows 8: In the tile format (with “Metro” gone, I’m not too sure what this is called anymore), you are presented with multiple applications that direct you to utilize Bing’s services, including core search, news, maps, finance, etc. As I’ve noted previously, Microsoft has been less than successful with convincing the vast majority of users to make the switch in the past, despite the fact that they prefer it 2:1 over Google (GOOG) in blind tests (granted, by Microsoft’s numbers), as well as the fact that Microsoft is essentially paying you to use its service (via Rewards credits to buy Amazon gift cards, Redbox movies, etc). For some reason, this isn’t enough to cause people to change their behavior; however, it looks like Bing’s placement in Win8 might be a bit more successful.
According to Marketshare.Hitslink.com (here), Bing has about 12% market share in the U.S. across all PCs, while Google holds a six-fold lead at 73% (these numbers are off compared to Comscore, but I still think they hold weight for this discussion). If we narrow our criteria to Windows desktop users (which obviously doesn’t slim the universe too much considering the company’s commanding lead in the space), the gap decreases slightly: Bing jumps to 14%, and Google falls to around 70%. However, the real change occurs when we focus on Windows 8: For users running this OS in the U.S., Bing’s market share approaches 25% (with Google around 64%). On the site’s separate measure for Windows 8 with touch, Bing does much more than inch closer: Under those parameters, this site estimates 41% market share for Microsoft’s search engine, compared to just 48% for Google.
I want to be very clear about one thing: I put almost no weight on the specificity of these numbers. I have no way of confirming the accuracy of this site’s measures beyond its core search figures (which are roughly comparable to commonly cited industry figures, namely Comscore data). With that being said, I think the direction and magnitude of the shift in search share shows something that is commonly overlooked at this point in time; when you think about the fact that roughly 350 million PCs will be sold around the world in the coming 12 months (by industry estimates), and more than 300 million of them will be running Windows, it quickly becomes apparent why this could cause big changes in Microsoft’s Online Services division.
Bing’s market share has more than doubled in the past 36 months; if you ask me, there’s a good chance that the search engine could replicate that absolute performance (meaning eight to ten points of organic market share gains) in the next three years and, for the first time, create some serious buzz about the long-term potential for Bing to unseat the king of search.
About the author:
I think Charlie Munger has the right idea: "Patience followed by pretty aggressive conduct."
I run a fairly concentrated portfolio, with a handful of positions accounting for the majority of the total. From the perspective of a businessman, I believe this is sufficient diversification.