Contemporary Marketing, 2013 Update 15th Edition by Louis Boone ,David Kurtz

Exercise 26

Microsoft Uses Partnership to Hedge Its Bet on Bing
When Microsoft recently unveiled its own search engine, Bing, skeptics said it would have a tough time making inroads on Google's dominance of the search industry, where revenue is generated by advertising. It's true that Bing has struggled to become a viable contender.
Microsoft has already invested more than $5 billion trying to build an online business that can make money, and its online services business is still losing millions of dollars. But Bing has managed so far to gain a little more than 11 percent of the search market, and Microsoft is pinning its hopes for the infant search engine on a new ten-year partnership with Yahoo!, which holds about 17 percent of the market. Google claims an intimidating 65 percent and earns overall annual revenues of more than $23 billion.
"As soon as we close and implement the Yahoo! deal, we have achieved a milestone: for advertisers, we are a credible No. 2," says Microsoft's senior vice president of online audience business. "Really, now, the goal is about share gain. If we grow share, we will grow our way into profitability, and we have confidence we can do that."
Once approved by U.S. regulators, the deal will give Microsoft effective control of a nearly 30 percent share of the search market by making it Yahoo!'s underlying search engine. "At 30 points we are now a credible option, so that number matters," says Microsoft's senior vice president. "The nice thing is we can say [to advertisers], you can be close to 30 percent share in one easy buy. That 30 percent carries a lot of weight in the marketplace.... There's no question we intend to make a profit.... Clearly there's a huge return in the search marketplace that can more than make up for the investments we've put in to this point.... Every day that we grow a tenth of point of share, that moves us further up the curve."
Bing is already a successful application for Apple's iPhone, but Microsoft isn't saying whether it will add a partnership with Apple to its Yahoo! agreement. Meanwhile Google's share of the search market adds up to ad revenues of more than $23 billion a year. "Ultimately we want to be a major player at scale, so we're going to have to grow against Google at some point," Microsoft's vice president acknowledged.
Some observers looking at Yahoo!'s prospects are concerned that the Bing-Yahoo! partnership may lower Yahoo!'s stock value, at least in the short term, and possibly complicate Microsoft's attempts to buy Yahoo!. Adding Bing may also hurt Yahoo!, they say, in its own continuing challenge to Google's increasing online dominance. Other problems that still face Bing are related to Microsoft's decreasing dominance of the Internet browser market. Its Internet Explorer no longer dominates the scene, and newer browsers like Safari, Mozilla, Opera, and Chrome have taken share. Users of these programs don't have to rely on Bing, cutting the new search engine's potential audience.
Microsoft is undeterred, however. It recently unwrapped a new feature that lets Bing users looking for travel, health, leisure, and shopping view images of their search results instead of poring over pages of text-based links. It's also planning ways to tailor Bing for international audiences.
What possible disadvantages could the partnership have for the two firms? Which one do you think has more to lose, and why?