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Every few months, the rumour crops up that Microsoft is going to offload its money pit of a search engine, Bing, to Facebook.Most recently, an anonymous marketing exec wrote an e-book floating the idea. Then, the New York Times reported that somebody from Microsoft brought up the idea to Mark Zuckerberg last year. He rejected it.
And he’ll keep rejecting it. As he should.
Facebook would be absolutely insane to pay a single dollar to buy Bing from Microsoft.
FACEBOOK CAN’T AFFORD THE KIND OF LOSSES MICROSOFT MAKES ON BING
Based on its own financial statements, Microsoft has lost more than $10 billion on its consumer online business in the last five years, and those losses don’t seem likely to slow. If you add the revenue that business has gathered, Microsoft has SPENT more than $30 billion trying — and failing — to build a successful consumer online business around search.
Analyst Rick Sherlund notes that Bing has been a 7% hit on Microsoft’s operating margins. So imagine the hit it would make on Facebook’s operating margins.
And that doesn’t even get into the massive capital expenditures Facebook would need to build the technology to keep pace with Google. Microsoft has used its massive profits from Windows and Office to build at least half a dozen state-of-the-art data centres around the world. Microsoft uses those data centres for Bing, but also for a lot of other products like Office 365, so they wouldn’t be part of the deal. Meanwhile, Facebook just opened its second.
SEARCH IS A GREAT BUSINESS — FOR ONE COMPANY
Promoters of the idea assume that because Google has proven it’s possible to make huge gobs of money with search advertising, other companies should be able to duplicate that success.
So far, that’s been absolutely false. Only Google, with its massive scale and continuous improvements to ad optimization technology, has made gobs of money at search. Microsoft has been at search advertising since 2005 (it rebranded its search engine as Bing in 2009, but it goes back way farther than that) and has been totally unable to make money at it.
Yahoo was making money at search, but it knew it would have to keep investing more than it could afford to keep pace with Google — that’s why it outsourced search to Microsoft.
PEOPLE DON’T COME TO FACEBOOK TO SEARCH, AND OLD HABITS DIE HARD
Here’s the biggest false assumption — that Facebook’s 900 million users would gleefully start conducting searches on the site if only Facebook would offer a search box in a prominent position.
But as Microsoft has found out, entrenched habits are hard to break. When people want to search, they go to Google. When people want to interact with friends, they go to Facebook.
Here’s how strong the Google brand is: back in 2009, Microsoft did some blind user testing of search results from Bing versus Google. Users overwhelmingly found the search results labelled “Google” were more accurate. Then, Microsoft switched the brands on top but kept the results the same. Once again, users said the results labelled “Google” were more accurate — even though they were actually Bing results.
THE LAST THING FACEBOOK NEEDS IS A BIG DISTRACTION
One of Facebook’s best assets right now is Zuckerberg’s intense focus on making Facebook better. He’s so focused on that, he doesn’t even want to meet with Wall Street ahead of Facebook’s IPO.
He doesn’t even particularly care about being rich. All he wants to do is change the world with Facebook by connecting people in new ways.
Getting into a whole new business area, and integrating a bunch of outside people and technology, would be a huge distraction. That’s exactly what Facebook DOESN’T need as its revenue growth starts to slow and it faces new challenges from Google and the shift to mobile.
Now, if Microsoft wanted to DONATE Bing to Facebook, and agreed to cover the necessary R&D investments and capital investments to keep pace with Google’s technology for, say, five years, then maybe Zuckerberg would be smart to consider a deal.
One more point: The New York Times report says that Microsoft execs approached Facebook to sell Bing without the official sanction of CEO Steve Ballmer.
In almost every public appearance he makes, Ballmer talks about how important Bing is to Microsoft’s overall business — how the technology can improve other products like Xbox and Windows Phone.
Unless he’s lying, or Microsoft’s other businesses slow down so much that he has to change course, expect him to stay committed to that business for a long time.