Bing has officially been around for more than six years, and it has existed in some incarnation for 17 years, starting with MSN Search. That's a long time for a business to be unprofitable, but thanks to the heft of parent company Microsoft , the software giant's search business was able to languish in the red for a long time. But as promised at the end of fiscal 2014, Bing has turned profitable in fiscal 2016.
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The biggest growth driver for Bing was Windows 10, whose users contributed 20% of search revenue in September. And it's still early for Windows 10, which was released at the end of July and had just 75 million installs at the end of August (and 110 million installs by early October). As Windows 10 grows, Bing may become more profitable, and Microsoft may end up taking share from Alphabet's Google.
The Windows 10 strategy is workingMicrosoft is giving away Windows 10 to all Windows 7 and Windows 8 users. For a company that historically made the bulk of its profits from software sales, that decision highlighted a massive shift in strategy for Microsoft. The goal with Windows 10 is to drive the company's cloud services business, which includes Bing.
Windows 10 currently holds a 6.6% share of the desktop and laptop market, and an even smaller share of the total device market, including tablets and smartphones. Google recently announced that it sees more search queries on smartphones than on desktops. Windows 10 Mobile won't be released until December, but Microsoft's share of the global smartphone market is still less than 3%.
Windows 10 is designed to promote Bing searches. There's a new universal search bar at the bottom corner of the screen that will search for files on your computer alongside search results from the Web. Microsoft has also enabled voice search with Cortana, which provides results from Bing. Finally, the new Edge browser performs well enough that it may court some upgraders to make it the default browser over Google Chrome or Firefox, and thus benefit Bing as the default search engine.
Just getting startedThat Windows 10 users are averaging 3.5 times the search revenue as all other PC users should concern Google. As I mentioned, Microsoft had just around 75 million Windows 10 devices in use at the beginning of September. There are around 1.5 billion PCs in use total, so there's plenty more growth potential for Windows 10.
Considering the improvements to the operating system over Windows 8 and that Microsoft is offering a free upgrade during the first year of its release, adoption rates should be relatively high compared with previous Windows releases.
With that in mind, Bing could start to take share from Google as Windows 10 penetration increases. Google currently holds a dominant position, taking about two-thirds of the world's search traffic. That means there's still a good amount of low-hanging fruit for Microsoft to take when users upgrade to Windows 10.
Can Microsoft keep this up?While increased penetration of Windows 10 will probably lead to improved profitability for Bing, there are reasons to believe future Windows 10 users won't be as profitable. Additionally, Microsoft may have a much harder time penetrating the mobile search market through Windows 10 alone.
Early adopters of Windows 10 are probably fans of Microsoft's products in the first place. This small percentage of users drive a disproportionate amount of revenue for Microsoft's services already, and the fact that they upgraded early to Windows 10 may be skewing the search revenue share for the OS. That's not to say Microsoft's efforts haven't improved Bing's results -- just that future installs might not be as profitable.
But the bigger concern is that more users are searching for things on their smartphones than on desktops, where Google holds a dominant position. Android is installed on over 80% of smartphone shipments, and Google is the default search engine for about 97% of mobile browsers. Unless Bing expands as the default search engine beyond Windows 10 Mobile, the search engine's revenue growth will be stunted by the shift to mobile -- where Google dominates.
The article Microsoft's Bing Is Profitable Thanks to Windows 10 originally appeared on Fool.com.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares). The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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