Bing Gains Hollow as Microsoft Online Bleeds Millions

Microsoft’s Bing search (decision) engine keeps chipping away, that’s for sure.

After inheriting an 8 percent market share when it took over for Live Search last May, Bing has been growing little by little every month, reaching 11.3 percent of the U.S. search market in January, according to market researcher comScore.

That’s a half a percentage point higher than December’s 10.7 percent. This is basically how Bing has been rolling: it takes another small step forward each month.

ComScore has Google’s market share dipping 0.3 percent in January to 65.4 percent, but the search neighborhood bully has been impervious to Bing’s gains, remaining mostly flat over the last year.

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What Bing has unfortunately managed to do is blast friendly fire at pending partner Yahoo. Yahoo’s search market share has dropped roughly 3 percent since Bing came on the scene. Like it has nearly every month, Yahoo dipped 0.3 percent in January to 17 percent, according to comScore. As Bing makes small gains, Yahoo makes small drops, keeping their eventual union at the same total market share percentage (just under 30 percent).

Yet Bing’s steady growth is tainted by the fact that Microsoft’s Online Services division continues to lose big money. Microsoft’s earnings for 2Q 2010, in which Windows and Office saved the day again, showed that nearly every division was profitable except Online Services, of which Bing is a major part. This division has been losing hundreds of millions of dollars for two years (it reported a $466 million income loss for the last three months of 2009).

So yes, Bing is gaining market share, but Microsoft’s search business is not profiting from it because it is spending more money to get these traffic gains through promotions and deals than it gets back from Bing revenue.

That’s not good. A Silicon Alley Insider story estimates that Microsoft spends $2 billion a year on its online division. The story also cites a line from Microsoft’s most recent Form 10Q quarterly SEC filing: “Cost of [online] revenue increased $171 million or 50 percent, primarily driven by higher online traffic acquisition costs.”

We can strongly assume that “online traffic acquisition costs” is Bing, meaning most of that $171 million has been spent on boosting (buying?) Bing traffic. That’s in addition to the $100 million Microsoft spent on launching and marketing Bing.

With the Online Services division deep in the red, Bing’s incremental market share gains don’t mean much. Bing is, for lack of a better word, a money pit, and taking share away from Yahoo and not the real enemy, Google, makes matters worse.

If this expense/revenue disparity keeps up, the Yahoo search partnership will be another bottom line killer for Microsoft rather than a market-share boosting, profit-generating force to be reckoned with.

Shane O’Neill is a senior writer at CIO.com. Follow him on Twitter at twitter.com/smoneill. Follow everything from CIO.com on Twitter at twitter.com/CIOonline.