There’s been a lot of buzz about Microsoft Corporation (NASDAQ:MSFT)’s search engine Bing lately. Not only did the underdog search engine grow its American market share significantly at Yahoo! Inc. (NASDAQ:YHOO)‘s expense, but it was also introduced as the new default search engine of Apple Inc. (NASDAQ:AAPL)’s iOS 7. Could these positive catalysts give Microsoft Corporation (NASDAQ:MSFT) a much needed shot in the arm to grow its cloud-based ecosystem, which is also fueled by Windows Phones and its Xbox One console?
Rising market share
Microsoft Corporation (NASDAQ:MSFT) has a unique partnership with Yahoo! Inc. (NASDAQ:YHOO), which allows Bing to power all of Yahoo!’s search results. This partnership started in 2009, when both Microsoft and Yahoo! were struggling to hold Google Inc (NASDAQ:GOOG) at bay. As a result, Yahoo!’s share of the search market directly benefits Bing. Recent year-on-year numbers in the U.S. indicate that the growth of Bing’s market share is outpacing its rivals significantly.
|U.S. Market Share %||May 2012||May 2013|
Source: comScore (includes mobile search)
Google Inc (NASDAQ:GOOG)’s growth has notably flattened out, which suggests that the largest search engine in the country has very little room to keep growing. Bing has stolen market share away from its partner Yahoo!, as well as minor players Ask and AOL, Inc. (NYSE:AOL). Bing’s growth can be attributed to the continued dominance of Internet Explorer as a PC web browser and the slow and steady rise of Windows Phone 8.
Google Inc (NASDAQ:GOOG) shows notable weakness in mobile search – its mobile search share, which once peaked at 95%, has declined to 84%. Meanwhile, Yahoo! and Bing have captured 11% and nearly 5% of mobile search volume, respectively. Since mobile searches now account for 20% to 40% of total search volume on the Internet, this is a positive indicator that Google Inc (NASDAQ:GOOG) isn’t as invincible as once thought, despite the dominance of its Android operating system.
Yahoo! wants a divorce
All of these numbers indicate that Bing is cannibalizing its partner, Yahoo!, in a very lopsided partnership. In exchange for powering Yahoo!’s search results, Microsoft Corporation (NASDAQ:MSFT) gets 12% of Yahoo!’s revenue from search display ads. In return, Microsoft guarantees a certain amount of revenue per search query from Yahoo!’s sites. If search queries don’t generate enough revenue, then Microsoft Corporation (NASDAQ:MSFT) pays the difference. This revenue guarantee originally expired on Mar. 31, but Microsoft extended the agreement by 12 months on Apr. 30. The revenue from that agreement isn’t significant, at only $12 to $15 million per quarter, which accounts for roughly 1% of Yahoo!’s top line.
Therefore, Yahoo! CEO Marissa Mayer wants to terminate the 10-year search deal with Microsoft, which was signed by her predecessor, Carol Bartz. Mayer is seeking to cut ties with Microsoft to partner up with Google Inc (NASDAQ:GOOG), her former employer, instead. According to Bloomberg, Mayer has already entered an informal agreement with her former Google colleagues, which could take effect if she manages to break ties with Microsoft.