Sample Reports

The latest version of Microsoft's Internet search engine, Bing, is not a major new initiative but rather represents a continuation of Microsoft's search strategy of improving core algorithmic results while innovating in particular areas, such as product and travel searches. More important, Microsoft has finally come up with a coherent marketing strategy, giving the company its best chance yet to take market share from Yahoo and Google.

Why Continue in Search?

After years of outsourcing MSN Search to other providers, Microsoft began working on its own search engine in spring 2003 and launched it in Jan. 2005. Since then, the company has changed its name and user interface several times, gradually improved the relevance of its core results, and added features. Over the same period, Microsoft has built and gradually improved a platform for search advertisers, adCenter. (For a timeline of Microsoft's search efforts, see the sidebar "Search Timeline".)

These moves have been expensive: Microsoft's Online business segment, in which search is included, earned US$411 million in operating profit in the four quarters ended Mar. 31, 2005. (Some of this revenue came from a search advertising deal with Yahoo; the rest came from display advertising, dial-up Internet access, and subscriptions to other online services.) Four years later, the Online segment showed an operating loss of US$2.01 billion in the four quarters ended Mar. 31, 2009. According to comments by CEO Steve Ballmer at the 2008 Financial Analyst Meeting, search is primarily responsible for the growing expenses in this segment.

Despite the huge investment, through Apr. 2009 Microsoft's market share has not grown. According to Nielsen NetRatings, Microsoft's search market share in the United States was about 13% at the beginning of 2005 but had fallen to about 10% in Apr. 2009. Over the same time, Google's share grew from about 47% to 64%, while Yahoo's fell from approximately 22% to just over 16%. Globally, Google is even more dominant, with about 80% share, while Microsoft's share is about 5%.

Microsoft continues to view search as a top priority for several reasons. First, search provides a tremendous revenue opportunity: in 2008, Google garnered revenue of more than US$14 billion from advertising on its own Web sites, primarily search advertisements. Despite Google's dominance, Microsoft maintains there is room for improvement—for example, Microsoft's research shows that half of all searches do not return a useful result, and that 35% of search users express dissatisfaction with search today. Lastly, Google is releasing low-cost or free online competitors to core Microsoft software products, such as Gmail (which Google is now promoting to organizations as a replacement for Exchange Server), Google Docs (which competes with Office), and the recently demonstrated Google Wave (which could compete with Exchange, SharePoint Server, and Communications Server). This combination of huge opportunity and significant threat explains why Microsoft continues to invest heavily in search, even as the company's core businesses are facing slower or declining growth in a difficult macroeconomic climate.

Bing Executes on Existing Strategy

Launched in May 2009, Bing doesn't represent a major change in Microsoft's product strategy for search but rather is the latest effort to execute on its existing strategy. That strategy consists of improving core algorithmic results, innovating in user interfaces, and delivering unique experiences for searches with commercial intent—that is, search queries that appear to precede a commercial transaction, such as conducting product research or looking for the lowest price online. The last point is particularly important to Microsoft: for some types of searches, Bing's results pages serve more like a destination site where users can conduct research into a purchase, while a typical search engine simply lists links to various third-party sites. This ties in with Microsoft's efforts to portray Bing as a "decision engine" that helps users accomplish certain tasks, rather than a mere search engine like Google and Yahoo.

The Bing launch does not include any changes to Microsoft's platform for search advertisers, adCenter, which is developed on a different schedule, although adCenter received a minor update a few weeks prior to Bing's launch. (For details, see "AdCenter Tools for Advertisers Updated".) Advertisers have generally expressed satisfaction with adCenter but have complained that Microsoft's search engine doesn't get enough traffic to justify a major advertising expenditure.

Better Algorithmic Results

Although Microsoft is emphasizing Bing's difference from traditional search engines, the company recognizes that the vast majority of searches will begin and end with the algorithmic results in the main body of the page—what Microsoft calls the "ten blue links." These results must be as good as Google's, or users probably won't return to Bing.

Several factors influence relevance, including the total number of pages indexed and the algorithms used to rank the relevance of results. By investing heavily in its datacenter infrastructure, Microsoft believes it has achieved parity with Google. Microsoft is now concentrating on improving its relevance-ranking algorithms through several methods. In particular, the company has used data collected from several million users who have installed the Windows Live or MSN Toolbars and opted in to allow Microsoft to track their Web activity in order to improve Microsoft products. (Data is collected without any personally identifying information, allowing users to remain anonymous.) This method allows Microsoft to gather information about how users search not only at Microsoft's search site, but also how they search at Google and Yahoo. This data can include information such as the queries entered and how long the user spent at each result before bouncing back to the search results page. Microsoft has also increased its expertise in the area by hiring engineers from Yahoo and through the July 2008 acquisition of semantic search company Powerset.

Although measuring relevance is highly subjective and can vary depending on the type of query executed, early reviews of Bing suggested that results for most queries are on par with Google's, and in some cases are better.

Presentation

Ever since the first beta of Windows Live Search emerged in early 2006, Microsoft has tried to differentiate its search engine with distinct user interface features. For example, the results page for image searches gradually expands to incorporate more images as the user scrolls, eliminating the need to click to a second page, while hovering over the results for video searches causes a preview of the video to begin playing on the results page. The front page of the search engine features a photograph instead of Google's mostly blank screen, and users can hover over "hot spots" on that photograph to conduct searches that lead to more information about it. All of these features were available in Live Search and continue forward with Bing.

Bing offers further improvements in how search results are displayed. Certain types of search queries pull information from within corporate Web sites and display it directly on the results page. For instance, searching on "UPS" not only returns a link to the shipping company's home page and various subpages but also includes a package tracking box and the UPS customer service phone number. In addition, a left-side toolbar suggests related searches based on the activities of previous users (based on technology acquired from Powerset), and hovering over search results gives users a preview of the text on those pages, reducing the likelihood that users will click through to a useless result.

Searches with Commercial Intent

Beginning in late 2007, Microsoft made an effort to provide unique experiences when users conduct searches with commercial intent. Microsoft is focusing on this area because it's one of the most common reasons people search—more than 30% of queries fall into this category—and because it's the most likely to result in users clicking an advertisement. (Just as with all other types of search queries, advertisements appear in clearly marked boxes, and advertisers have no influence over where or how their products appear within the algorithmic results.)

Live Search had previously introduced features that catered to commercial searches. For example, product search pages introduced user reviews and average ratings aggregated from around the Web, and in spring 2008, the company began offering cash rebates to users who purchased certain products through advertisements on Live Search.

Specific improvements for commercial searches include the following:

Travel. Microsoft has integrated technology gained in the Apr. 2008 acquisition of Farecast to provide detailed airline ticket pricing information when users enter queries related to planning a trip. For example, if users enter "Seattle to San Francisco," the top result is "cheap tickets from Seattle to San Francisco," and includes the lowest available ticket price and a prediction whether that price will rise or fall in the near future. Users who select this result are taken to a secondary page that arranges ticket prices from airline sites and travel sites such as Expedia and Orbitz. (This feature currently works only for flights that start within the United States.)

Products. Microsoft has continued to improve results for product queries. For instance, if users enter "digital cameras," the top result is "shop for digital cameras"; clicking that result takes users to a secondary page with images of different cameras and aggregate ratings from users and experts (such as professional reviewers) around the Web. If the user selects one of these results, another page appears showing more information, such as prices on that digital camera from various online stores.

As in previous versions of Microsoft's search engine, queries that appear to be for a local business (such as "Seattle Ford Dealers") return as their top result a map with listings of relevant local businesses, and queries on health-related terms (such as "psoriasis") return as their top result an article from a known authoritative source such as the Mayo Clinic. (Microsoft gained these health-related results in its 2007 acquisition of MedStory.)

Marketing Strategy

While the product improvements in Bing are evolutionary, the marketing strategy is a sharp break with past efforts. Previously, Microsoft branded its search engine with the same brand as its other consumer online services and bought only minimal advertising. The company hoped that visitors to its more popular online services, such as MSN.com and Hotmail, would stumble across its search engine once and continue to use it.

With Bing, Microsoft is making a clear split between search and its other online initiatives and is launching a major promotional effort for its search site. Specific changes are as follows:

Name. Because Microsoft tied its search engine to its other consumer online properties, and those properties were undergoing strategic and branding shifts, Microsoft's search engine had three different names in the two years after its launch—MSN Search launched in Jan. 2005, changed to Windows Live Search in Mar. 2006, and then changed again to Live Search in Sept. 2006. None of these names featured an easily memorable URL, and Live Search faced particular problems: Microsoft never owned the domain livesearch.com, and at the Live Search launch, live.com was a customizable home page, forcing users to type the awkward search.live.com URL in order to reach Live Search. With Bing, Microsoft has a memorable, concise, and easy-to-spell name with a simple URL. More important, this brand is not being used for any other Microsoft product, protecting against the temptation to rebrand search along with other online properties.

Advertising. Although Microsoft conducted some print and online advertising for its previous search engines, Bing will benefit from a mixed-media advertising campaign that will reportedly cost between US$80 million and US$100 million. Created by firm JWT, which took over Microsoft's People-Ready Business campaign early in 2009, the advertisements will include a six-month TV buy on par with the Windows Experience campaign, including a particular focus on late-night talk shows. Bing will also benefit from distribution deals previously signed for Live Search, particularly deals with OEMs Dell and Hewlett-Packard to preinstall Internet Explorer with Microsoft's search engine as the default on some consumer PCs, which began in 2009.

Third Time the Charm?

Bing could be considered version three of Microsoft's search engine.

Version one was MSN Search, launched in Jan. 2005 after a year and a half of development and several months of beta testing. Work began on version two in mid-2007 when Vice President Satya Nadella took over Microsoft's search business and began developing the current strategy. This version, which included significant improvements to core algorithmic results and specialized search results in certain verticals (such as products and entertainment) launched in fall 2007. At the same time, Microsoft was negotiating an acquisition or business deal with Yahoo in an effort to increase its share of search users and advertisers quickly.

Microsoft has been working on version three for approximately 18 months and has sped development with a number of small but critical technology acquisitions—Ciao (European shopping listings), Farecast, and Powerset—and the recruitment of technical employees who worked on Yahoo Search, including Online Services President Qi Lu. The decisions to give search its own brand and devote major advertising resources to it suggest that Microsoft finally feels its offering is competitive.

Nonetheless, the company faces an uphill battle. According to Microsoft's internal research, choosing Google is almost unconscious for many users. However, switching costs for search engines are very low—once users discover they like a particular search site, it takes almost no effort to continue to use it. Very early reports suggest that Bing is already taking some market share from Google and Yahoo, and it may be enough to vault Microsoft quickly into the number-two position, giving the company more leverage if it decides to reopen negotiations for Yahoo's search business.

Resources

Bing is at www.bing.com

Microsoft's most recent distribution deals for its search engine are discussed in "Search, Windows Live Deals Signed" on page 18 of the Feb. 2009 Update and "HP to Distribute Live Search, Silverlight" on page 22 of the July 2008 Update.

The most recent major updates to Microsoft's search engine are covered in "Searchers to Get Cash Back" on page 24 of the June 2008 Update and "Improved Relevance, Interface for Live Search" on page 34 of the Nov. 2007 Update.