Bing Bungle Won't Faze Google

BING, which is the third iteration of Microsoft Search, includes a number of helpful search features. However, we do not believe that the launch of Bing will result in a sustainable material shift in search market share for a number of reasons: None of Bing's features are highly differentiated, Google has a meaningful library of proprietary data, particularly in Maps, which would likely take Microsoft several years to replicate; Google has an estimated 8 times more search traffic than Bing, which gives the company an advantage in improving the relevancy of results; Google has a larger advertiser base, allowing it to deliver better targeted ads; Google is outspending Microsoft's online business in research and development; and the previous marketing initiatives of Microsoft Search fizzled after an initial bump in traffic. Google's last 12 months R&D is $2.6 billion, compared to $1.4 billion for Microsoft's Online Services Business. Google invests 70% of resources on its core business, which includes search, AdWords (Google's search-advertising platform), and related products. Microsoft's total fiscal-2009 R&D budget is estimated at $9.3 billion and the company could choose to invest additional resources in search. However, we think it would be hard to justify transferring R&D dollars from its core business into the online division, given that Microsoft OSB is generating a run-rate operating loss of $2 billion.

Microsoft rules out buying Yahoo

Microsoft Corp Chief Executive Steve Ballmer ruled out an acquisition of Yahoo Inc on Wednesday but said his company was interested in resuming talks on a Web search partnership.Yahoo shares fell 19 percent on the remarks, after gaining this week on renewed investor hopes that Microsoft may refresh its bid for the Internet company. Microsoft withdrew its $47.5 billion buyout offer for Yahoo in May after Yang and his board rejected the bid as too low. The software company then offered to buy Yahoo's search business, but Yahoo decided instead to sign a search advertising deal with Google Inc.