Microsoft needs to concentrate on a different kind of
search: finding a buyer for Bing, its online search business. The industry’s
distant number two is a distraction for the software giant — and one that costs
shareholders dearly. The division that houses Bing lost $2.6bn in the latest
fiscal year. Facebook, or even Apple, might make a better home for Bing. And a
sale would be a boon for Microsoft’s investors.
Microsoft has been pouring money into Bing — this year’s
losses are greater than the previous year. The company thinks search makes
Microsoft’s offerings in everything from mobile phones to business software
more compelling. Perhaps, but there’s little evidence to date. And Bing and
sites it powers like Yahoo still only control about 27 percent of the US
market. Google has more than twice as much.
Advertisers don’t want a monopoly in the search business,
which should assure Bing of some future revenue. And Google may be partially
hamstrung in competition by antitrust probes worldwide. But the business has
more value to a buyer that could bring it traffic.
How much? Microsoft’s online services unit, of which Bing is
far and away the biggest component, had $2.5bn of sales in the year ended June
30. Google is valued at about six times sales over the last 12 months. At a 25
percent discount to Google, the unit would be worth about $11bn if sold.
Moreover, there are potential buyers. Facebook already works
with Bing. It might be interested in buying the site, keeping more traffic
onsite, and perhaps using its voluminous data to better tweak search results —
that would be a potent weapon in its fight with Google, which recently rolled
out social network Google+. Apple might even be interested, given its growing
online ambitions.
In a deal, Microsoft could either get paper in a highly
coveted company or cash, which Microsoft to its credit has been good about
returning to shareholders. Equally, it could buy back stock, as the company
trades at nine times estimated earnings — almost a 20 percent discount to the
S&P 500.
On top of any proceeds a sale would bring, it would stanch
losses, like this year’s $2.5bn. Without these, Microsoft would have made 10
percent more profit. That’s something that would excite even jaded Microsoft
investors.
(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own.)
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