In the ongoing antitrust case of US v. Google, Microsoft CEO Satya Nadella took the stand, shedding light on the state of Bing, Microsoft’s search engine. While acknowledging Bing’s inferiority to Google in the search engine market, Nadella emphasized that Bing is still a profitable venture for Microsoft. This marks a significant insight into Microsoft’s long-term strategy surrounding Bing and its role in the competitive landscape of search engines.
The Profitability of Bing
In his testimony, Nadella stated that Bing already turns a profit for Microsoft. While he did not disclose specific numbers, this counters the narrative that Bing is a failed experiment in a Google-dominated market. “I used to think of Windows and Office as attractive businesses until I saw search,” Nadella said. He pointed out that Bing didn’t have to win the market to be a big business. According to Microsoft’s financial disclosures, search advertising revenue grew by 17% year-over-year in fiscal year 2022. This growth was maintained in the first two quarters of fiscal year 2023 with rates of 16% and 14% respectively.
The Apple-Google Dynamic
One of the critical points in Nadella’s testimony was the notion that defaults matter. He stated that Bing’s market share could dramatically shift if it became the default search engine on Apple devices. Nadella was so invested in this idea that he even mentioned he was prepared to lose up to $15 billion a year to make it happen.
“Defaults are the only thing that matter,” he insisted, pointing out that even Apple Maps gained market share simply by being the default map service on iPhones. This shows Microsoft’s willingness to invest heavily in Bing, indicating the strategic importance of the search engine to the tech giant.
The Role of AI and Partnerships
Nadella also touched upon the impact of AI and Microsoft’s partnership with OpenAI on Bing. He believes that AI-powered systems could either help Bing catch up to Google or further widen the gap. This is due to the changing dynamics of how data is ingested and used to train AI systems, and the potential for exclusive data access deals that could favor Google.
The Importance of Being the Default
Bing’s market share as of March 2023 was 3.1% globally and 7.1% in the U.S., making it the second most used search engine in the United States after Google. According to Nadella, Bing’s market share in Windows is in the teens, showing that being the default does have a measurable impact. However, Google’s legal team argues that their dominant position is not because Bing is the default on Windows but rather because Google has simply built a better product.
The Competitive Landscape
Nadella’s testimony highlighted the importance of default settings in the search engine market. It also revealed that despite Bing’s challenges in competing with Google, it has carved out a niche that is not only sustainable but also profitable. However, the search engine market is fluid, with vertical search engines like Yelp and TripAdvisor and social media platforms also vying for a piece of the advertising pie. Nadella dismissed the idea of these as serious competitors, focusing instead on Bing’s battle with Google.
Navigating the Future
Nadella’s testimony offered a glimpse into Microsoft’s perspective on Bing’s role in the larger tech ecosystem. While Bing may be a distant second to Google, it is far from irrelevant. Its profitability and the willingness of Microsoft to invest heavily in it suggest that Bing will continue to be a significant player in the search engine market for the foreseeable future. With the growing influence of AI and data, and the ever-present possibility of regulatory changes affecting big tech, the trajectory for Bing could change rapidly. But for now, as per Nadella, Bing is not only surviving but also turning a profit, making it a critical part of Microsoft’s portfolio.