Facebook announced today that search results on its site will no longer be coupled with results from Bing. This move was made due to an large upgrades to Facebook’s search function, which should cut down on the time it takes for users to find past comments or posts from friends. However, this decision will hurting Microsoft, which is already struggling in competition with Google, and could mark the end of a rocky relationship with Facebook.
In 2007 Microsoft invested $240 million in Facebook (a move that was criticized at the time), and in addition to seeing its investment grow with Facebook’s success, Microsoft created bundles with Facebook to increase access to its services. Google has long been the default search engine for most web surfers, but by including Bing results on Facebook allowed Microsoft to increase its market share in the search engine industry. In addition, Facebook permitted Microsoft to control banner advertisements on Facebook in international markets, but in 2010 Facebook took back control as it moved to profit more from advertising, which marked the first unraveling of the bundle. In 2013, Facebook did not even produce an app for the Windows phone despite having done so for other smart phones.
With Facebook moving away and creating its own advanced search functions, Microsoft will have to undertake other means to increase its market share. My earlier post pointed out that Google controls roughly 70% of the search engine market in the US, while Bing (somewhat surprisingly, I felt) still controls 20%. This leaves Microsoft far behind in the battle for advertising revenues, and with Facebook inching its way into the search business the hotelling model predicts Microsoft’s profits could continue to diminish.