Microsoft Challenged Google with Bing Launch, Yahoo Deal in 2009

Microsoft decided to challenge Google more robustly in the U.S. search-engine arena in 2009, pouring millions of marketing and development dollars into a revamped and rebranded search engine, Bing.

Microsoft originally announced Bing as the replacement for its Live Search at the seventh annual D: All Things Digital conference in California on May 28. As part of that announcement, Microsoft suggested that it would try to expand the boundaries of traditional search, with "intuitive tools to help customers make better decisions" and a focus on "four key vertical areas: making a purchase decision, planning a trip, researching a health condition or finding a local business."

Microsoft CEO Steve Ballmer, speaking at the conference, seemed a little less clear about where the name "Bing" had originated. "I’m not the creative guy here," he reportedly said. "Short mattered…people like to 'verb up'…works globally, doesn’t have negative connotations." Before its launch, Microsoft’s search engine had been code-named "Kumo."

During the conference, Yahoo CEO Carol Bartz also told columnist Kara Swisher that she would consider selling Yahoo’s search apparatus, or even the company, to Microsoft in exchange for what she termed "boatloads of money."

Microsoft ended up launching Bing on June 1, two days earlier than expected. In a deliberate departure from Google’s traditionally stripped-down landing page, Bing offered colorful art along with the search bar, mostly of locations such as Haiti’s Citadelle Laferriere. Bing also allowed users to click on tabs for "Images," "Videos," "Shopping," "News," "Maps," and "Travel" for a granular search in those particular areas; for example, clicking on the "Travel" tab brings up an interface reminiscent of those offered by travel Websites such as Orbitz, and allows users to input their prospective flight details in order to see routes and deals.   

On the eve of Bing’s launch, according to a comScore report, Google held 64.2 percent of the U.S. search engine market, while Yahoo occupied 20.4 percent and Microsoft held 8.2 percent.

Before the launch, some analysts announced positive expectations for Bing in the marketplace. "Today most advertisers buy search ads just with Google and Yahoo because Microsoft has a measly…share of searches—not enough reach to make buying search ads with MS worth the trouble," Shar Von Boskirk, an analyst with Forrester, wrote in a May 28 posting on the Forrester Blog for Interactive Marketing Professionals. "Forrester expects Bing to change that."

Carol Bartz, however, was far less kind about Microsoft’s search engine prospects. "They’re not going to get scale through Bing," she said during a speech at the Bank of America and Merrill Lynch U.S. Technology Conference in New York on June 3. She added that any interest in the search engine would be "temporary."

In retrospect, Bartz’s quote is somewhat ironic. And despite her predictions of Bing’s stillbirth, the search engine made some gains out of the gate. According to research company Hitwise, Bing grew at a rate of 25 percent per week throughout June, owning 5.25 percent of the U.S. online search market by June 27 (that same study found that Google and Yahoo had 74 percent and 16.2 percent, respectively, of that market). At the same time, StatCounter found that Bing had increased Microsoft’s market share from 7 percent to 8.23 percent during the same time period. comScore data released in July pegged Bing’s June share at 8.4 percent.

In what could be interpreted as an initially worrying sign, however, research company SearchIgnite found that Microsoft’s share of the U.S. paid search advertising market remained stagnant for the second quarter of 2009, at just under 6 percent, roughly in the same position as before the launch of Bing.

"We have had some good initial response," Ballmer told The National Summit in Detroit on June 17. "I don’t want to over-set expectations. We are going to have to be tenacious and keep up the pace of innovation over a long period of time."

Helping fuel Bing’s growth, of course, was an intensive marketing effort estimated at costing between $80 million and $100 million.

But Bing experienced a longer-term boost on July 29, when Microsoft and Yahoo announced a 10-year search-and-advertising partnership that would see Bing powering search on Yahoo’s sites, while Yahoo assumed exclusive worldwide sales duties for both companies’ search advertisers. Under the terms of the agreement, Microsoft will pay TACs (traffic acquisition costs) to Yahoo at an initial rate of 88 percent of search revenue generated on Yahoo’s sites. Unlike Microsoft’s failed 2009 bid to purchase Yahoo for $44.6 billion, the new deal involved no cash up front, although reports in December indicated that Microsoft would pay Yahoo some $150 million in expenses by June 30, once the deal closes.

"The deal is a clear win for Microsoft, which receives the search volume it needs, without the risk and expense of a full acquisition of Yahoo, all for a fraction of the proposed acquisition price," Allan Krans, an analyst with Technology Business Research, wrote in a July 29 research note. "In hindsight, the failed $45 billion bid for Yahoo may seem like a blessing, as Microsoft avoided both a large financial outlay [and] the myriad of issues that would have been faced [in] integrating a purchase of that scale.

"Taking the operating income benefits estimated by Yahoo, this deal will cost Microsoft between $500 million to $1 billion annually," Krans also noted, "which pales in comparison to the proposed acquisition price, and is not significant given the spend rate in Online Services is already approaching $6 billion per year."

Other analysts, though, seemed in concurrence that even an alliance between Microsoft and Yahoo would not present Google with a genuine survival threat. If Yahoo’s U.S. search-engine market share was ported over to Microsoft with no attrition, its total percentage would be just under 30 percent, while Google continues to occupy around 70 percent.

In announcing that Yahoo-Microsoft deal, Ballmer suggested that the partnership would feed data from Yahoo’s sites into Bing, helping to refine the search engine.

Since the signing of the deal, Yahoo has attempted to demonstrate that it has not, in fact, been gutted by the upcoming loss of its search engine. During an Aug. 24 press conference, Prabhakar Raghavan, senior vice president of Yahoo’s Labs and Search strategy, suggested that tweaks to front-end offerings such as Yahoo Mail and Yahoo Messenger would draw users to Yahoo and attract all-important advertising dollars.

In a Sept. 22 event at NASDAQ MarketSite in Times Square, Carol Bartz further suggested that the loss of a search engine would ultimately prove secondary to a retooled Yahoo’s aims.

"Background search is much like an Intel chip," Bartz told the assembled media at the event. "Thank God they’ve done their R&D and gotten it out into the world; but the experience that Dell wraps around those chips, and HP wraps around those chips, is different."

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