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Power of Microsoft's Bing an open question in search industry

By Bill Rigby

SEATTLE (Reuters) - Microsoft Corp's new chief executive, Satya Nadella, likes to boast that Bing is growing and powers 30 percent of the Internet search market, making it a worthy competitor to Google Inc .

But within the advertising and research industries that measure and manage search as a business, Microsoft's strength is an open question.

The figures quoted by Microsoft, which include searches by partner Yahoo Inc , are much higher than the rate at which people actually click on the links that a search returns, according to new studies by industry researchers.

The new search data calls into question Bing's effectiveness for advertisers. It also lends support to the argument from some investors that Microsoft should sell Bing.

Microsoft has been in the Internet search business since 1998, and Bing - five years old this month - is its latest and most intense effort to unseat market leader Google. The company initially assumed that its world-class engineers and the sheer scale of its Windows user base would sweep away competitors, but Google has not relinquished any share.

To measure its progress in the search business, Microsoft prefers to cite market share numbers from comScore, which established itself as the prime source for Internet data a decade ago, when reliable numbers were hard to come by, and has long been considered the gold standard.

ComScore said Google sites had 67.6 percent of U.S. searches in May, compared with Microsoft's 18.8 percent and Yahoo's 10 percent, which are both powered by Bing.

ComScore bases its calculations on desktop computer Internet searches by about a million anonymous people in the United States. It does not measure searches on mobile phones or tablets, which are dominated by Google, but it does count searches within the big MSN and Yahoo portals, factors which help explain why Bing has such a significant share.

CLICKS COUNT

But advertisers are less interested in searches than what users do with search results. They want traffic to their sites; they care what search result links users click and what sites they visit. In recent years, technology has made that behavior much easier to track.

"Clicks are important because they tell us how well we are capturing (search users') demand, and of course advertisers pay based on clicks," said Jason Hartley, group media director at search marketing firm 360i, whose clients include brands such as Coca-Cola and Verizon. ComScore data "can lead you down the wrong path, or it doesn't give you as much insight as you'd like," he added.

A study published last month by Conductor, a company that advises marketers on how to stand out in Web searches and social media, showed Google accounted for 85 percent of traffic to websites from search engines, with only 5 percent from Bing and 7 percent from Yahoo. The study was based on 100 million visits to 63 websites from clicks on search links - not counting ads - including from mobile devices.

Ireland-based StatCounter, which gets data from more than 3 million websites, found Google accounted for 80 percent of search engine-supplied U.S. traffic in the last three months, Bing 10 percent and Yahoo 8 percent. Search marketing firm Define Media Group came up with similar figures based on 1.4 billion visits from search engines so far this year to 125 websites.

Advertisers make the same point with their spending: web marketing firm IgnitionOne estimates that Google gets about 77 percent of web search ad dollars against 23 percent for Yahoo/Bing. Design software maker Autodesk told Reuters that it generally splits search ad spending 80/20 in favor of Google with its "significantly larger pool of users".

The does not mean comScore's data is faulty. Rather, many in the search industry say it doesn't measure what advertisers and website owners want to know, the web traffic generated by a search.

"Their current methodology is likely to mislead those who take it at face value," said Rand Fishkin, a well-known pioneer in the search engine optimization field and co-founder of search advisory firm Moz.

ComScore stands by its figures. Vice President of Marketing Andrew Lipsman said the data is not designed to measure where Web traffic goes, only the searching behavior of consumers. He added that comScore is working on integrating mobile device results into its data.

Microsoft said it had no reason to doubt comScore's figures. It added that it is committed to Bing, which is a core part of Microsoft's game console Xbox and its coming voice assistant on Windows phone. Bing also powers other companies' sites and devices, including Apple Inc's Siri and soon Apple desktop search. Bing is integrated into translation features on Facebook and Twitter.

Microsoft search advertising revenue rose 38 percent last quarter, helped by higher prices and more searches, it said in its last quarterly report, without disclosing dollar figures.

Microsoft's online services unit, which includes Bing, lost more than $14 billion in Bing's first four years, including the cost of a failed acquisition. Last year, Microsoft put Bing in a new reporting group so its financial performance is obscured, but many on Wall Street assume Bing is still losing money.

Craig Beilinson, director of consumer communications at Microsoft, said it "continues to gain traction" as a standalone search engine and powering other companies' products.

While Bing has grown, that improvement has come mostly at the expense of Yahoo, according to comScore figures. The combined share of Bing and Yahoo has risen less than one percentage point in five years, taking share from smaller competitors Ask.com and AOL Inc , not Google.

Some search marketers say they like having an alternative to Google, and that Bing/Yahoo can be a good investment for some clients.

"Clients that have an older demographic, we sometimes do better on Bing or Yahoo," said Pauline Jakober, founder of Group Twenty Seven, which advises mid-sized clients on paid search ad campaigns. Business-to-business, like janitorial or industrial types, could do well on Bing, while tech clients might not even want to advertise on Bing, she said.

But Bing has drawn criticism from some investors because it is expensive to operate, requiring resources from engineers to server farms.

The new search data called into question Bing's usefulness, said Todd Lowenstein at HighMark Capital Management.

He and other investors believe Microsoft should focus on products that businesses pay for, such as the Office suite of products and the Windows operating system.

"Microsoft would be better served selling Bing to another player who can use the asset," he said.

Ironically, Google does not highlight this weakness any more than Microsoft.

"Google loves the fact that anybody other than Google looks like they are doing better," said Danny Sullivan, longtime industry observer and editor of the Search Engine Land blog. "It's a very handy tool for them to go out and say you don't need to be regulating us, look, the market's strong."

Google and Yahoo declined comment on the comScore data.

(Reporting by Bill Rigby, editing by Peter Henderson)

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