Bing
Bing is making a bang, and Google is getting the blow back. Source: Bing

A big part of the Google(NASDAQ:GOOG) (NASDAQ:GOOGL) business is the traffic and ad inventory it acquires from web browsers and other search providers and websites. In that regard, its biggest competition is Microsoft (NASDAQ:MSFT), which has started to make significant headway against the king of search.

Microsoft now shows the majority of search ads on three of the top five search engines in the U.S. Of course, Google still dominates total traffic share, but Mozilla already dropped Google as the default search engine for its popular FireFox web browser, and its current deal with Apple (NASDAQ:AAPL) for the default spot in Safari is expiring this year. Google is getting attacked from all angles.

Search and display ad inventory
Microsoft has made several moves to snatch up search and display ad inventory around the web.

While we often think of Google and Microsoft as the only players in web search (in the U.S. at least), numerous smaller search engines rely on both companies to supply advertising against their search results. That used to be an area Google dominated, as Microsoft only launched Bing six years ago. AdSense for Search helped bring in nearly $14 billion in revenue from Google Network Members' websites in 2014.

While Microsoft recently sold off its display ad business, analyst Jan Dawson estimates that the display advertising portion of Microsoft's digital advertising business has been declining for some time, while search advertising moves toward $1 billion per quarter in revenue. A similar pattern can be seen among other companies, he says, presumably including Google.

As such, losing search ad inventory is much more costly for Google than losing display advertising. Nonetheless, Google has been resilient, and its AdMob acquisition continues to boost revenue at Google Network Members' websites.

Traffic acquisition deals
While Google receives a significant portion of its revenue from other search engines and websites, the vast majority of its revenue comes from its own websites, primarily its search engine. Last year, Google generated $45 billion in revenue from advertising on its own websites.

A large portion of Google visits come from users simply typing in a search query in their browser navigation bar. Google pays a hefty $13.5 billion to various other companies to send traffic its way by default. That number also includes the amount it shares with Network Members displaying Google ads.

Of those traffic acquisition costs, analysts believe between $1 billion and $2 billion are sent to Apple in exchange for making Google the default search engine in Safari on iOS and OS X. That is one of its most valuable resources, as an estimated $9 billion in mobile search ad revenue comes from iOS, and OS X continues to gain share in the PC market.

Google would not lose all of that revenue, and it would save the costs related to traffic acquisition if it loses the Apple contract. Nonetheless, it would make a significant dent in Google search ad revenue, particularly on mobile. Analysts believe Google would recover just half of its lost users if it gets bumped off the default spot in Safari.

Tim Cook made it clear that he considers Google to be Apple's biggest competitor, so it will certainly make the switch to Microsoft or another search provider if it feels the impact on its business will be negligible. Microsoft is one of the few companies that has enough cash to compete with Google for the contract.

Microsoft is not to be ignored
While Microsoft's search advertising business is still just a fraction of Google's, it is important to remember that Microsoft has only been in the business for a few years. Google had more than a decade's head start to establish lucrative partnerships and gain mind share among Internet users.

However, Microsoft has stepped up to the challenge, grabbing more than 20% of search share in the U.S. and filling the search ad inventory of other search engines in the U.S. and Europe. Microsoft's search ad business has room to grow, and as it improves, it could attract more attention from companies outside of Bing as a replacement for Google. Whether that is from website owners or web browsers, it is a growing risk Google must combat.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.