How Long Can Bing and Windows Phone 7 Be Beautiful Losers?

With the exception of the mighty Windows, Office and Xbox Kinect, Microsoft doesn’t have a product that is, for lack of a better word, winning.

In fact, it has a few lemons, and I sometimes wonder why Microsoft sticks around in markets where it is losing money. Why not just close up the money pits and focus on making your successful products even better?

The two that jump to mind are Bing and Windows Phone 7. I would add Zune, but Zune’s dead baby, Zune’s dead (at least on the hardware side).

None of these products are inferior at all, but they were designed to compete with Apple iPhones and iPods and Google in search and mobile, and needless to say, they are all struggling for their lives.

Zune hardware (media players) was discontinued in March after failing for five years to compete with the iPod. The Zune brand, however, will live on as media player software on Windows Phone 7 and on the Xbox 360. But that ship has pretty much sailed.

Bing — the main feature of Microsoft’s biggest money pit, Online Services — is the little search engine that could, slowly gaining search market share, mostly at Yahoo’s expense. But regardless of Bing’s pluck, it has not been able to take any market share away from Google since Bing launched in June 2009. Google had 65 percent search market share in June 2009 and had 65.5 percent market share this past June, according to market tracker comScore.

Bing and the online services division are like open veins, bleeding a couple billion dollars every year. In fiscal 2011, the division lost $2.56 billion and in 2010 it lost $2.33 billion. How much longer can Microsoft sustain these kinds of losses?

Windows Phone 7 is also barely hanging on, but not from lack of effort. In the U.S., Windows Phone 7 market share has been dropping steadily, down to 5.8 percent as of June 2011. Meanwhile, the powerful Android owns 40 percent of U.S. market share and the iPhone owns 26.6 percent, according to comScore. Microsoft has invested heavily in WP7, but so far it’s a case of too little too late. Smartphone buyers are a passionate and loyal bunch and they still haven’t welcomed Windows Phone 7 to the party.

However, research giant IDC predicted that Windows Phone 7 will get it together in the next few years, bolstered by its big “Mango” update coming this fall and the pending partnership with Nokia to run Windows Phone 7 on all Nokia hardware. IDC’s forecast has Windows Phone 7 owning 20 percent of worldwide mobile market share by 2015, second only to Google’s Android OS.

So despite being stuck behind the eight ball, there is hope yet for Windows Phones, and I think the same applies to Bing. Microsoft is not going to abandon either product anytime soon so cancel those funeral preparations. And here’s why.

Say what you want about whether the Bing “decision engine” is better than Google or whether its splashy ad campaign filled with celebrity endorsements and TV spots is making any difference, but Microsoft is using Bing as more than just a standalone Web search engine. It is expanding Bing’s features and spreading it around Microsoft’s ecosystem and to outside platforms as well (Bing is now the default search engine on all BlackBerry smartphones).

In many ways, Bing is relying on Windows Phone 7 (a risky proposition indeed). Windows Phone 7 is the platform where Bing will land the most. There’s a Bing button on every WP7 phone, and with the upcoming “Mango” update, Bing will evolve further with features such as Bing Vision (allows users to take pictures of products and get instant information on them); Bing Audio (a Shazam competitor); and Bing Scout, which helps users find amenities near their current location, such as restaurants, theaters, neighborhood events, and local landmarks.

Bing will also be highly integrated into the upcoming Windows Live TV service and Xbox Live and also Windows 8 and the Windows 8 app store.

To you and me, Bing is a search engine that competes with Google, but Ballmer and company view it as a component that will help give other Microsoft products an edge. At least that’s the idea. And it’s a good enough idea for Microsoft to keep pouring hundreds of millions into a product that is definitely not returning the favor.

I’m a big proponent of choice so if Microsoft wants to spend big money to keep Bing and Windows Phone 7 in the race, I’m all for it because it’s good for consumers. But at some point something other than Windows, Office and Xbox need to generate revenue for Microsoft or it will be time to seriously consider selling, buying or murdering its way out of the Bing/Windows Phone conundrum.

What do you think? Should Microsoft kill off products that are not making money or gaining market share? Would we all better off if Redmond funneled more resources into its successful products?