Handicapping Bing
August 7, 2009
Channel Insider ran an interesting article “Will Yahoo Microsoft Deal Make Bing the Next Big Thing?”. The article raised an issue I had not thought about in depth. Channel Insider stated:
According to Hitwise, Google had 74 per cent of the online search market share in June, with Yahoo and Bing trailing far behind at 16 per cent and five per cent, respectively.
Let’s assume that this Hitwise “number” is accurate. If I sum Bing’s share and Yahoo’s share of the search market, I get 21 percent. The balance of six percent share flows to other companies running independent Web indexing operations.
Here’s what brought me up short. Most of the other Web search systems are either human powered like ChaCha and Mahalo or metasearch engines which use the indexes of Google, Microsoft and Yahoo. I recall Internet superstar investor, entrepreneur, and pundit Jason Calacanis saying on a Twit podcast or being quoted on a Twit podcast that one percent share of the Web search market is worth a billion dollars.
Mr. Calacanis may have been talking about the “value” of a percentage point in Web search market share in terms of a payout over a five or 10 year period. My hunch he was, but I want to take his statement literally and apply it to the data in the Channel Insider write up.
Let’s assume that Google has a 74 percent share in the Web search market and, therefore, perhaps should be a bigger revenue producers; for example, a $74 billion company. It is not and won’t be for at least another 36 to 48 months if luck and the economy remain on Googzilla’s side. We can take the same $1.0 billion metric and apply it to Yahoo. Shareholders should be smiling about Yahoo’s generating $16 billion in revenue. Yahoo’s in a revenue pickle for sure. At this time (Summer, 2009) Microsoft is a solid $65 billion plus company. At least $5 billion should be coming from its Web search business. In my experiences, unspooling Microsoft’s revenue detail is a tough job. I would suggest that Microsoft’s various Web search initiatives have not generated a total of $5 billion in the five years.
My question, silly as it is, becomes, “Where’s the missing money?”
First, I think the Calacanis estimate is interesting but a bit on the upside of the teeter totter. The Industry Standard’s chart (now somewhat long in the tooth) shows that most of Google’s revenue comes from Web advertising. My research suggests that this ad revenue is linked to Google’s search system.
Source: http://www.thestandard.com/news/2009/01/22/picture-guess-where-google-gets-97-its-revenue
So, 97 percent of Google’s $23 billion (est.) revenue is about $22 billion. Juggling the numbers in my head suggests that one percent of the Web search market for Google translates to less than $1.0 billion in revenue for the search giant.
Second, Microsoft’s recent search deal with Yahoo may show an informed decision. Instead of spending the $40 to $45 billion of the now infamous Yang deal, Microsoft is keeping cash, getting share, and taking on staff and operational costs. These costs will be punishing, but the good news is that the price tag is likely to be less than buying Yahoo in its entirety. The bad news is that with a percentage point or two uptick in Web traffic for Microsoft may not be the billion dollar bonanza the Calacanis estimate suggests.
Third, what happens if Web advertising softens? Both Google and Microsoft will take a hit. Microsoft already has a solid revenue base from its server and enterprise software lines of business. Google gets a harder shot to the liver. Google, therefore, will have to make real headway in the enterprise in order to avoid a slow down in growth or a decline in revenues.
My hunch is that Bing will not be the next big thing. Even if it gains share, the likelihood of a suppression in ad revenues either from price cutting or a general downturn will put pressure on Google. Google will have generate significant revenue from its enterprise sales. That may be a tall order in the short term.
I think the handicappers should focus on the Google, not Bing.
Stephen Arnold, August 7, 2009
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