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- Microsoft and Google are in a renewed battle over online search.
- Unveiling new AI-powered tools in Bing, Microsoft hopes to steal market share from Mountain View.
- Google has long benefited from a costly deal to be the default search engine on Apple devices.
Google's stock erased billions of dollars in value following an AI event on Wednesday where it demonstrated how the company will incorporate conversational chatbots and natural language answers into search. The company's chatbot, named Bard, made a factual error in one of its answers, and the product demo appeared to be a rushed response to Microsoft's revamped Bing with ChatGPT, which was unveiled just a day earlier.
The launch of ChatGPT within Bing has been heralded by Microsoft CEO Satya Nadella as a "new day" for search. He made it clear the company hopes to stoke Google into a renewed competition over the future of search, one in which users get answers to questions directly within the results page without needing to navigate through a list of blue links.
But a crucial detail that's been missing in the conversation is that Google has cemented its search dominance in part by controlling key distribution channels. The company pays Apple an estimated $15 billion a year to be the default search engine on the more than 1 billion iPhones and other Apple devices in use globally.
The Justice Department made the search deal the center of an antitrust case it filed against Google in 2020, arguing that it disadvantages smaller competitors that cannot afford to compete for the default spot on Apple devices.
That deal, and Google's control over Android and Chrome, could make it difficult for Microsoft to gain market share in search, even if the AI-based features in Bing increase its usage.
On top of the Apple deal, Google controls Android and Chrome, with roughly 71% and 65% of the smartphone and browser markets, respectively. Put another way, the vast majority of smartphones, globally, have Google set as the default search engine.
Microsoft says there are more than 1.4 billion active Windows devices in circulation. The company has been investing in its Edge browser, which is installed on new Windows hardware and uses Bing as the default.
In a note Thursday, Bernstein analysts wrote that the firm had received "numerous requests" from investors for information regarding the Google-Apple search deal in recent days. That suggests there's some nervousness about Microsoft swooping in to try and cut a deal with Apple for the default spot. Based on its understanding of Google's deal with Apple, Bernstein believes that a 3-year default search deal is coming up for renewal later this year.
The most recent data from analytics firm StatCounter estimates that Google commands nearly 93% of the global search market compared to Microsoft Bing's 3% share. Even with such a small share of the market, Bing is a key piece of Microsoft's $10 billion-a-year advertising business. And the company has been pushing more into the advertising space with a deal to serve as the tech and sales provider for Netflix's new ad-supported tier. It said last year that it hopes to double ad revenue from $10 billion to $20 billion a year — Bing could be a big pillar of the strategy.
"Default iPhone search is the most accessible prize in terms of distribution," wrote Stratechery's Ben Thompson on Thursday. "But that would be a massive financial commitment without the commensurate advertiser base and, frankly, search quality, that Google has. Bing is still Bing."
It's difficult to parse the superiority of search results from Bing versus Google, but the latter benefits from its billions of users that produce a valuable feedback loop for improving search quality. Google analyzes the billions of searches users place daily in order to return the most desirable results. Theoretically, Microsoft could outbid Google for the default position on iOS and gain hundreds of millions of new users, helping it to improve the quality of its results.
To hammer home its commitment to the revamped Bing, Microsoft has said that it believes that every 1% of market share it can take from Google would represent $2 billion in additional search revenue. Microsoft is serious about becoming a contender in advertising and is willing to spend to get there — last month it invested $10 billion into OpenAI, the company powering Bing's new conversational AI.
Microsoft has acknowledged that conversational AI searches that provide answers directly within search could reduce potential monetization from sponsored links, but that the impact would be greater for Google.
It's unclear whether Apple would want to change the default search engine to Bing, but it's always had a contentious relationship with Google. At the very least, a bidding war could give Apple leverage to demand a higher price for the default position. Microsoft has roughly $100 billion in cash on its balance sheet, making it one of the few companies that can compete with Google for the spot.
A spokesperson for Microsoft declined to comment on any potential attempt to bid for default search on Apple devices. Google did not immediately respond to a request for comment.
Apple's services business, which includes the search deal, was a bright spot in the company's most recent earnings report.
For all the talk about self-driving cars and augmented reality glasses, advertising remains the largest source of revenue for Google as well as other tech giants like Meta. Microsoft wants a bigger slice of the pie.