CEO Satya Nadella and team have worked diligently the past year in changing the perception of Microsoft (MSFT -2.45%) from a PC-reliant software firm to the world's leading supplier of cloud-based solutions and a serious player in mobile. On the cloud front, Microsoft is succeeding in a big way, as evidenced by triple-digit revenue growth last quarter and an annual run-rate of $6.3 billion. Depending on how cloud revenues are measured, if not the out-and-out leader as measured by sales, Microsoft is certainly near the top.
As for mobile, Nadella's strategy of getting Microsoft Windows and Windows Phone operating systems into as many devices as possible -- regardless of manufacturer -- has been well-received, as it should be. Taking on smartphone behemoths like Apple is an awfully big hill to climb, which makes Microsoft's mobile OS strategy even more sound.
With so much emphasis on Nadella's "mobile-first, cloud-first" initiative, "old school" businesses like search can sometimes get lost in the shuffle. But Microsoft has not given up on its Bing search engine, as some investors may have noticed last quarter given its results, and new enhancements could be the precursor for even more good news from the Bing team.
Already on a roll
Last quarter marked a milestone for Bing search market share in the U.S. After demonstrating years of slow but steady growth, Bing now accounts for 20.1% of domestic search traffic. Next to the likes of Google with its 64.2% market share, these Bing results may not seem like a win. But considering Google's longtime stranglehold on search, Microsoft recognizes these efforts as a marathon, not a sprint.
Google's piece of the stateside search pie has been steadily declining: it sat at 67.6% a year ago. Of course, losing out to Yahoo! as the default search engine for the Firefox browser last year only accelerated losses. It appears Yahoo! picked up much of Google's lost market share, but Bing remains a clear number two in the U.S.
Bing is translating its market share growth into revenues. During the fiscal third quarter, search advertising revenue jumped 21%. Unfortunately, Microsoft does not report Bing-specific revenues, but it seems safe to say that Nadella's plan to bring the search engine back into the black by next year is right on track.
The path to profitability
An area of consternation for Bing users has been its video search results. By tweaking its algorithms, Bing will soon return more relevant music search results, complete with larger thumbnails. The thumbnails allow a user to either "play in place or you can click through to the source of the video to watch it there," according to Microsoft.
It has been suggested that this new and improved video search capability makes it an alternative to YouTube. Of course, the popularity of YouTube is undeniable with billions of views each day and 300 hours of video uploaded every minute. But simply improving Bing makes the new video search function worthwhile, regardless of its position relative to YouTube.
The aforementioned mobile strategy Microsoft is delivering on should also give Bing usage -- and by extension revenues -- a boost. Just as Google makes its search engine the default on its wildly popular Android devices, the same applies with Bing and the growing number of smartphones and computers running Microsoft operating systems.
What impact will the new feature and mobile strategy have on Bing market share? Time will tell, but it is already moving in the right direction, and with growth drivers in the works, the road to profitability looks promising.
