After living in the shadow of Google Search (GOOG, Financial) for many years, Microsoft’s (MSFT, Financial) search engine Bing seems to have found a second wind. With search advertising still in double digits but starting to show an upswing, there seems to be enough momentum to take it a long way.
Of course, that is not to say they will displace Google in the next five years, because that ship has sailed. The best they can do now is to keep that momentum going, so they have a larger and stronger user base that can continue generating ad revenues. Let’s see how they are going about it.
The Uphill Task for Microsoft Bing
The company knows only too well that it is going to be an uphill task to gain market share against Google, but instead of throwing in the towel and calling it a day, Microsoft has been forging partnerships for Bing that promise high longevity.
Here are some of the key deals they have struck and how it will impact Bing.
Microsoft-Yahoo Deal
This is basically a deal update that will improve the search experience for Yahoo (YHOO, Financial) users and bring more advertisers into the fold. The original agreement was signed in 2009 and this update is an extension intended to provide more stability and productivity into the relationship, for mutual benefit. Microsoft hopes that this will continue to foster user growth as well as advertiser growth, both of which Bing needs in order to gain market share.
Microsoft-Apple Deal
For the past three years, Apple’s (AAPL, Financial) virtual assistant Siri has had an assistant of her own, Â Bing. The search engine helped Siri by providing relevant web links and even specific answers whenever a search-type query was thrown at it.
This is a critical component of artificial intelligence, since AI bots must be able to scour the internet in microseconds for large amounts of data, and Bing scored big when chosen by Apple for the introduction of iOS 7 in the fall of 2013.
Microsoft-AOL Deal
Here is one area where Bing is actually displacing Google. Under the terms of engagement with AOL (AOL, Financial), for a 10-year period, Microsoft Bing will allow AOL to handle all of its advertising on Skype, XBox and other assets. In exchange, Bing will become AOL’s preferred search engine, effectively putting Google out of the picture.
This is a tremendous coup because AOL’s assets alone - HuffPost, TechCrunch, etc. - have over 200 million monthly unique visitors. But what makes the deal really sweet is that they were able to edge out Google, which had been providing the search capabilities for AOL for a long time.
What is Microsoft Really Doing Here?
By staying in the shadows and striking deals with key partners, Microsoft has managed to keep Bing relevant in our eyes. And by really hanging in there, the company finally has started to taste some success.
Bloomberg estimates Microsoft’s search advertising revenue to be around $5.3 billion, which is significant. Even though it is dwarfed by Google’s ad revenue numbers, it is a major win for a search engine that many literally wrote off years ago.
Google has a huge ace up its sleeve and that is Android. With more than 80% of the world’s smartphones operating on Android, Google Search will always be there when the world needs information. Microsoft does not have that strength, so it will have to rely on its partners to keep it in the hunt.
Microsoft has been reducing its focus on selling advertisements and is increasingly relying on partners such as AOL to do the job. A smart move considering the content empire AOL and its parent company, Verizon (VZ, Financial), has been building in the last few years.
These strategic deals will lead to an increase in advertising contribution to Microsoft revenues, but it does two other things as well. First, it frees Microsoft’s time so more attention can be given to core growth drivers such as Office 365, cloud infrastructure and Windows. Second, and more importantly, it will keep Google on its toes because Alphabet knows full well that one slip up like the one with AOL may not hit them hard, but a series of such missteps could be disastrous to their core revenues.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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