One backlash of Microsoft’s (NASDAQ:MSFT) revelation that its online services business lost $2.6 billion in the last fiscal year is that it had financial pundits calling for not only CEO Steve Ballmer’s resignation, but for the Redmond, Wash., software giant to dump the main culprit: Bing.
Reuters Breakingviews columnists Robert Cyran and Martin Hutchinson July 24 called for Microsoft to shed its search business for cash. Cyran said:
“Microsoft needs to concentrate on a different kind of search: finding a buyer for Bing, its online search business. Bing is the industry’s distant No. 2 after Google. It has become a distraction for the software giant-one that costs shareholders dearly. The division that houses Bing lost $2.6 billion in the latest fiscal year. Facebook, or even Apple, might make a better home for Bing. A sale would be a boon for Microsoft’s investors.“
This prompted a public relations reaction from Microsoft, which quickly seeded The New York Times with an insider’s piece on Bing. Microsoft granted the Times rare access to Bing leader Qi Lu, whom the software giant lured from Yahoo three years ago to power Bing. Lu talks about the need for a decision engine to make search more intuitive for users.
Analyst David Card, who recently became GigaOm Research’s director, said ridding itself of Bing would be a bad idea for Microsoft.
“Microsoft must have a credible search-engine business to defend its core platforms and APIs, as well as keep its biggest rival, Google, honest by forcing Google to create sustainable business models in competitive markets like applications and mobile,” Card wrote. “And a somewhat more successful search engine would solidify Microsoft’s own ad business and open emerging revenue streams.”
In other words, without Bing, Microsoft lacks the necessary firepower to counter Google online. Facebook enjoys a growing social display-ad business, but it hasn’t quite taken off the way experts believe it should or will. There really are no other formidable challengers, not only to keep Google “honest,” but also to keep the dominant search engine from resting on its laurels. That’s prone to happen in the Internet era; see Yahoo for reference No. 1.
Indeed, Google has accelerated its pace of innovation. Perhaps Google’s biggest search innovation since Bing formally launched in June 2009 came in the form of Google Instant predictive-search technology in September 2010.
Instant was first used for search results, but is now also employed for actual Web pages for which users are searching. The idea is to speed up the pace at which users search for and land on information they are seeking. Google believes this will save its 1 billion Web searchers countless hours of time.
IDC analyst Hadley Reynolds also said that Bing is better for Google, Microsoft and the rest of the world. Reynolds suggests that the reward for success-new business in software and services for social, mobile and local territory-could be bigger than Office for Microsoft at some point in the future.
“The business models may be different, more subscriptions and advertising, but the ability to provide users with an attractive and functional online experience is a constant,” Reynolds told eWEEK. “They will refuse to cede this territory to Google, no matter how many mistakes like Zune and Windows Phone and their earlier Web-search products it takes to eventually gain a good, strong competitive position.”
To that end, Reynolds doesn’t see Microsoft shareholders forcing the company to give up their grip on future business franchises, no matter how many pundits clamor for the play.
“While Google will continue to innovate, the reason they are more focused on this is because there is a viable competitor in the market,” Altimeter Group founding analyst Charlene Li told eWEEK. “Is this keeping Google honest? I prefer to think that it’s serving our [consumers’] needs better.”
Li-who admitted that she is a Google power user who occasionally goes to Bing for travel search, which she claimed is better than what Google offers to date-also pointed to the broad, deep partnership between Facebook and Microsoft: Facebook gives Microsoft social-network access and Bing powers Facebook’s Web search, need each other.
“The social search on Bing is decent, and at some point, I expect that parts of it will show up in Facebook itself. So add Facebook to the equation, and the whole dynamic changes,” Li said.