WHOA: Microsoft DID Try To Sell Bing To Facebook

Steve Ballmer Mark Zuckerberg

Photo: AP/Getty Images

There’s been a wild rumour going around the business press that Facebook might buy Bing from Microsoft. The rumour, which started as a prediction in an e-book written by an “anonymous” marketing executive trying to cash in on Facebook’s IPO, turns out to be truer than anyone could have guessed.

According to a nugget buried in a New York Times report on Facebook’s patent strategy, Microsoft executives approached Mark Zuckerberg to see if he’d like Facebook to acquire Bing.

This offer was made without the knowledge of Microsoft CEO Steve Ballmer.   Zuckerberg declined, saying Facebook needed to concentrate on its current businesses.

We can imagine an aggressive CEO like Zuckerberg changing his mind on this one.

Facebook’s display advertising business is decelerating and its payments business has gone flat. At some point, Facebook is going to have to find a business model that works. Google has proven search does. 

If Facebook did go down that road, it would have to retrain its users. Right now, Facebook is nowhere in search.   AOL, Amazon, and Ask deal with more search queries than Facebook, according to Comscore.

As for Microsoft, Rick Sherlund of Nomura Equity Research thinks it should defintely sell Bing. 

Here’s Sherlund’s argument, via Barron’s:

“Microsoft loses $2.5 billion a year with Bing, and that’s a 7-percentage-point  hit to operating margin, so it’s huge,” Sherlund observes in a phone call.

Moreover, “Investors have not been a fan of that line of business for a long time. They just don’t see the rewards.”

As Sherlund sees it, why does Microsoft even need to be in search, when opportunities with touch-screen technologies and tablet operating systems and the like all seem so much more integral to Microsoft’s strengths and goals?

Sherlund further posits that if Microsoft unloaded Bing on Facebook, it would still be able tomonetise its services, such as “Xbox Live” and “Skype” through its arrangement with Facebook.

“In order for Microsoft to have monetization through search or display ads, they could just turn over the work, the costs to Facebook, and get it back in TAC [traffic acquisition costs],” says Sherlund.

They would still get 80% to 90% of the revenue returned through TAC, they would end up getting most of the revenue anyway,” and without all the headaches.

Selling Bing would help Microsoft stop making this particular chart so ugly:

chart of the day, sai, microsoft online operating income, jan 19 2012

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