Facebook and Microsoft Split

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.

A view of Facebook's logo May 10, 2012 i

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.

2 thoughts on “Facebook and Microsoft Split

  1. I am surprised that Bing has a 20% share of the market as well. Bing was launched thirteen years after Google, so there were significant barriers to entry for Microsoft. Many people were already familiar with the Google search engine and had little reason to switch to another (i.e. brand recognition and loyalty). It didn’t help that Bing was considered inferior to Google; as our IO models show, a significant technological innovation is required to displace a dominant firm in an industry, and Bing did not provide such an innovation. Now that Facebook and Microsoft have split, I would be surprised if either has an increase in market share (assuming Facebook launches a search engine).

  2. Is this search function specific to content on FB sites? If so then the database required is much smaller than a full WWW search service. In addition, the search algorithms themselves can be better tailored to FB users, e.g. offering autocompletion and (if there is nothing) suggested alternate searches prioritized to lists of friends and so on. FB may be unwilling to give MS that level of internal access, and feel that such internal coordination benefits (positive externalities) exceed the outside expertise (lower costs) that building Bing gave MS.
     
    Some of this hinges on their relative ability to generate ads. Both MS and FB must have big marketing departments, but again their may be some “economies of scope” for FB to not rely on MS for that. There are also double marginalization issues.

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