In Search for Search Leadership

July 2, 2009 by
Filed under: Business, Technology 

Microsoft launched Bing in June as a re-branded, fresher looking version of Live Search. This is one more of the so far fruitless efforts to make money in the fast growing search industry. Last year, right before the economic meltdown, a bid to acquire Yahoo for $40B failed (Balmer, Microsoft’s CEO is probably thankful for that now.) Bing launched as expected with a huge marketing campaign (maybe actually clever) that goes after Google, so far #1 seated and far, far from the other 2. Is the investment worth it and how long will it take to pay back?

According to Internet data firm StatCounter, Microsoft gained a point of market share of US searches right after its launch in June 3rd to around 8.23%. At the same time Google’s declined slightly (0.24% to 78.48%) while Yahoo remained almost flat at 11.04% . Interestingly, during the first week, Bing accounted for 92% of searches to quickly stabilize at around 8.23%. Interesting payback for an estimated $3B investment (so far) in search by the software giant. Although it might trend as a positive market share growth it is not clear how long will it take to move the needle on Microsoft’s earnings. According to Yahoo finance (interesting choice of source) was a staggering $17B in fiscal 2008. Compared this to a mere (yeah, right) $4.5B of Google in its fiscal 2008 it seems like a battle not only tough to win, but the prize may not be as expected, especially for share holders.

Think about it. Google’s 78% of the market represents less than $4B in earnings. If Microsoft reaches, lets say 10% (1/8 of Google’s), and assuming the same cost structure it will earn $500M (or a 3% earnings increase). Yeah, yeah, I know what you’re thinking. These numbers are bogus and the bet is on growth. Sure, but to make a decent move on MSFT’s earnings, let’s say 10-12% (or $2B) they will need 4 times more earnings, which will mean a significant market share gain over Google and a never seen before growth (the market doubling and their share doubling doesn’t seem plausible). If everything else remains constant, that will mean $2 -$2.5 share price increase. Whereas a market doubling and a 10% share loss for Google will mean, well a 50% share price increase (yes $200/share). Sure more bogus numbers since MSFT is trading at <14 times earnings and Google at almost 30 so the market has already factored in a faster growth for the latter. It still illustrates the point that Google is better positioned to profit from search than Microsoft even if Balmer succeeds with Bing. Keep in mind that updates on both Yahoo and Google are expected in 2009.

This brings me to the real point I wanted to make. We all tried Bing. A gorgeous site, looks great and it works great. But the results are the same if not worse as with the other two. So as creatures of habit, like all geeks and online shoppers are, we all went back to our comfort zone. We will probably keep trying Bing a couple of times and it will probably succeed in taking on Yahoo’s #2 spot. But it will take a whole bunch of billions for people to conjugate Bing. I don’t know about you , but being “googled” is a lot better than being “binged”.

Enjoy.

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