Microsoft swears that Bing's no money pit

The chief financial officer for the company's Applications and Services group tells investors now is the time for Microsoft to put its foot on the gas with Bing, not sell it off.

Bing's home page. Microsoft

Like clockwork, every time Microsoft has released its quarterly earnings for the past few years, the stories about Bing being an endless money pit have appeared. (We've written more than a few of these on ZDNet ourselves.)

But Microsoft's massive investments in building Bing's datacenter infrastructure are now behind the company, said Dave O'Hara, the chief financial officer for Microsoft's Applications and Services Group. O'Hara answered questions about Microsoft's online services strategy on a December 19 investor call organized by UBS analyst Brent Thill.

Starting about six years ago, O'Hara said, Microsoft began making substantial investments in building out its datacenters, infrastructure, and in writing its underlying search algorithm. Those investments were reflected in constant operating losses reported by Microsoft's Online Services Division.

But now Microsoft has built the foundation required for Bing. Infrastructure investments for it will now be "incremental," O'Hara said, as Microsoft now has adequate capacity to run and maintain its search service. Microsoft will continue to make substantial investments in building out Office 365's and Windows Azure datacenter backends now, he said.

O'Hara noted that under Microsoft's new reporting structure, the company isn't breaking out its Online Services profits and losses. (Online Services was composed of Bing, MSN, and online advertising in the old reporting structure.) In some ways, he said he wished Microsoft still did because the company is now "on course or ahead of course" at breaking even.

Microsoft execs have said previously that the company would break even when it reached 20 percent to 25 percent share. O'Hara said he had no comment on when Microsoft will cross that line, but it will likely happen closer to the lower end of that share metric.

In its most recent quarter -- using the old reporting category breakouts provided by Microsoft for convenience -- online services lost $321 million on revenue of $872 million.

In keeping with Microsoft management's claims that Bing isn't an asset it would make sense to sell at this point, O'Hara stressed that Bing is no longer "just" a Web search engine and that Microsoft has integrated it into an increasing number of its products, such as Windows and Xbox. He said Bing also has given Microsoft a leg up in creating "one of the best data sets in the industry," which Microsoft will leverage increasingly in future products and services.

Though O'Hara didn't cite any of these products specifically, a couple of examples of areas where Microsoft's big-data prowess will come into play are offerings like its cloud-based business intelligence service bundle, Power BI, and the coming "Cortana" personal assistant technology expected to debut first in Windows Phone 8.1 next year.

O'Hara did say that Microsoft is planning to have search take on a "bigger and more visible role than in the past" on devices. He also said that Microsoft is aware that "we can do a better job of making the Bing search box the first thing you see" on more sites.

In response to questions about the Microsoft and Yahoo search relationship, O'Hara maintained that the partnership is "working pretty well" and that "friction has been removed" around revenue-per-share issues. (It's not clear that Yahoo execs share the same view, given the company's seeming reticence to share updated information on how much their Microsoft search relationship is contributing to overall revenues.)

After all the years of investment in Bing, Microsoft isn't at the point where it should be looking to shed its search business, O'Hara argued.

"We are finally at the point where we can drive operating leverage," he said. "We should be putting our foot on the gas" at this point.

This story originally appeared as "Microsoft: Bing is not a bottomless money pit (any more)" on ZDNet.

About the author

    Mary Jo Foley has been a tech journalist for almost 30 years. She is editor of ZDNet's "All About Microsoft" blog. She authored "Microsoft 2.0: How Microsoft Plans to Stay Relevant in the Post-Gates Era" and co-hosts the "Windows Weekly" podcast on the TWiT Network.

     

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