I wrote an article at the start of the year (here) that addressed the opportunity for Bing to gain market share as more and more users adopted Windows 8; at the time, I posted this data from Comscore:
|Year End (Dec)||U.S. Market Share|
And in case anybody missed that article, here’s what I concluded:
“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 (MSFT) 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.”
So there was my metric – eight to ten points of organic share gain over the next three years, which works out to an average monthly gain of a quarter of one percent, and annual share gains of 3%. With that as our benchmark, let’s see where we stand after six months, with the help of Comscore data published July 12:
U.S. Explicit Core Search - “Google Sites led the U.S. explicit core search market in June with 66.7 percent market share, followed by Microsoft Sites with 17.9 percent (up 0.5 percentage points) and Yahoo! Sites with 11.4 percent… 19.2 billion explicit core searches were conducted in June, with Google Sites ranking first with 12.8 billion. Microsoft Sites ranked second with 3.4 billion searches, followed by Yahoo! Sites with 2.2 billion, Ask Network with 524 million and AOL, Inc. with 253 million.”
In the past six months, Bing has increased its market share position from 16.3% to 17.9%, an absolute share gain of 1.6%; over a six-month period, that works out to average gains of 0.27% per month, just slightly ahead of my original target. While it only covers a 30-day period (and as such should be taken with a grain of salt), the results for this past month were superb: Bing’s gain of 0.5% in a single month – and a cumulative gain of 1% in the past 90 days – is a nice bump in the pace of share gains, as comparable to the recent past:
|Month||Bing's U.S. Share Change|
Personally, I think we’re just getting started: At Microsoft’s Worldwide Partner Conference (WPC), which happened this past week in Texas, COO Kevin Turner ended his presentation with a quick overview of new product launches/features that Microsoft will deliver in the coming year. These included “Bing for Windows 8.1” (if you haven’t seen Smart Search in action yet, check it out here), “Bing for Windows Phone,” “Bing for Xbox,” “Bing Apps,” “Next Gen Advertising” and finally, “Apps for Office.”
Management has continued investing in the product and brand, while simultaneously using its sizable install base to drive adoption and usage. In a space where share of mind is above all else, Microsoft has made considerable progress in closing the perception gap that existed between Google and Bing a few short years ago (admittedly, there is still much to be done on this front; they've spent as much time knocking Google as they've spent trying to build Bing's image).
Mr. Turner put it best during his WPC Keynote: “Look at what we continue to do against a great competitor in this space – every year, we grind out share, we just keep grinding, we keep coming, we keep innovating, and we keep making progress… growing every year, pushing every year against a very, very good competitor.”
This is a marathon, not a sprint; the beauty of generating $30 billion a year in operating cash flow, with marginal capital expenditures, is that it gives you plenty of firepower to focus your attention – and in a big way – as needed. Bing has clearly been an area of focus for Microsoft in the past few years (with the financial scars to show for it).
Bing has continued to take market share, and will continue to do so with the help of Microsoft’s financial resources and prominent placement within Windows (and my expectation is to start seeing it in Office in the not too distant future). To reiterate what I’ve said in the past, this has serious financial implications for Microsoft; the continued losses in the Online Services Division have been a consistent $0.25 to $0.30 headwind to EPS each of the past three years, or about 10% of Microsoft's normalized earnings in that period. Beyond breaking even, a peek at Google (GOOG)'s financial statements shows just how lucrative this space can be.
I’ll be back in six months to update the year-end results; I’ll stick my neck out and put the over/under target at 20% for December 2013.
About the author:
As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, "Patience followed by pretty aggressive conduct."
I run a concentrated portfolio, with a handful of positions accounting for the majority of my equity holdings (currently two). From the perspective of a businessman, I believe this is adequate diversification.