Cute, But Not a Game Changer (Premium)

Despite investing over $11 billion in OpenAI, a splashy launch for Bing Chat, deep integration in its Edge web browser, and promises of billions in additional revenues for just tiny usage share gains, Microsoft’s latest big consumer push is a bust: all too predictably, Bing has roughly the same usage share today that it had in January before Bing Chat launched. As I said back in February, Bing is a failure of a brand and a product, and Microsoft should have simply started over with a new brand.

According to StatCounter, Bing commanded 3.03 percent of the search engine market in January 2023, just ahead of the AI-powered Bing Chat launch. As of July, Bing had 2.99 percent usage share, a small decline that I will call flat to be polite. During this same time period, Google—which was ridiculed for its supposedly inept response to Bing Chat and other AI tools like ChatGPT 4, went from 92.9 percent usage share to 92.07 usage share.

The Wall Street Journal cites a similar lack of progress from another analytics firm, Similarweb, which says that Bing’s usage share in both January and July was 1 percent. Bing is, in the words of one well-spoken analyst, “cute, but not a game changer.”

Or, as Microsoft puts it, “a success.” The software giant told the publication that these third parties aren’t “measuring all the people who are going directly to Bing’s chat page.” “We’ve made more progress in the last six months than we have in the previous decade or two combined,” Microsoft’s Yusuf Mehdi told the WSJ. “We’re delighted with our start.”

This debate isn’t about perception, it’s about real dollars. Back in February, Microsoft claimed that every percentage point it gained in search would result in $2 billion in revenues, so even small gains would make Bing more successful and, less explicitly perhaps make it profitable and/or over time cover the heady costs of AI transactions, which are an estimated 10 times more expensive than traditional search queries.

That clearly hasn’t happened: instead, Bing Chat specifically and AI more generally are money pits for the software giant, which is racking up quarterly costs related to AI in the $11 billion range. In the conference call after its most recent quarterly earnings, Microsoft admitted that it spent almost $9 billion in cash in the most recent quarter on AI-related costs, about one-third of the cash it generated, and that this level of investment would only continue or grow in the coming quarters as its built out its infrastructure.

At that time, Microsoft also touted progress at Bing Chat, which it said had engaged in over one billion chats and had created over 750 million images for users, all for free. It did not claim, however, that Bing “took share” in the quarter, though it did make that claim for Microsoft Edge, its web browser. (And StatCounter does report that Edge usage did go up, barely, from 4.97 percent in April to 5.27 percent in June.)

But the WSJ does throw one bone at Bing: data from YipitData suggests that Bing’s user base went up by 10 percent to 98 million users between February and the end of June, and it’s reasonable to believe that Bing Chat was the reason. Granted, Google had 1.12 billion users during that same time period, so Bing’s user base is only 8.75 percent as big as Google’s.

Whatever your take on this, the problems for Microsoft and Bing are manyfold, and they always have been. In addition to my opinions on the failure of Bing as a brand and product, there are some inconvenient truths that will always conspire to prevent this service from truly succeeding.

The most obvious is Google: this company dominates online search and its revenues from the ads it displays there are the primary contributor to its financial success. In its most recent quarter, Google generated 79 percent of its revenues, or $58.1 billion, from ads. And Google has been a leading driver on AI innovations since its inception, and while its early post-Bing Chat efforts, like Bard, were perhaps unfairly mocked, the company has made incredible progress since then on the consumer side, most notably with what it calls its generative AI-powered Search experience (SGE). Google was never going to let an outsider, especially one as inept as Bing, steal search share.

Almost as obvious, yes, Microsoft has invested about $11 billion in OpenAI, the makers of ChatGPT and DALL-E. But it never secured an exclusive arrangement with OpenAI, and that company is free to push its own services and license its technology to Microsoft’s competitors. And it’s done both: unlike Bing, ChatGPT quickly raced to over 100 million monthly active users, making it the fastest-growing consumer service in history. And while those numbers may have fallen somewhat according to some analysts (in this case, at Similarweb), ChatGPT was able to surpass Bing usage despite being in the market just a tiny fraction of the time of Microsoft’s offering. In just three months, ChatGPT became a better and more successful brand than Bing. Which launched in 2009, about 14 years ago.

But the real issue here is that AI, which Microsoft positioned as some kind of unique advantage back in February, will simply be an ingredient of all relevant online services and products, and not something reserved for the biggest tech companies. And this ubiquity means that AI is just table stakes, and not something that resets the competitive landscape. In other words, Bing will still be Bing. And Google Search will still be Google Search. More to the point, if Google does lose share, it will be to OpenAI, the disrupter, not Microsoft, the Oldsmobile of consumer technology.

This should be obvious to any objective observer. But it should also have been obvious to Microsoft, in particular its top-level executive staff, which have watched helplessly has the firm’s hold over consumers, long tenuous, has vanished in an era driven by hardware, software, and services products that Microsoft does not make. Microsoft’s real advantage, its super-power, is with the enterprise markets that it dominates, and with its ability to tie together corporate data, what it calls the Microsoft Graph, into useful insights and connections.

And that’s the real argument here. That once AI is everywhere, Microsoft’s relative positions in the markets in which it competes will remain unchanged. It will continue to struggle with consumers—Bing was always a terrible brand—and it will continue to perform well with businesses, especially large businesses.

I do give Microsoft a bit of credit for the moxie it displayed back in February, undeserved as it was. CEO Satya Nadella, normally a droning, robot-like presence, bragged that Microsoft made Google “dance” when it released Bing Chat. Fair enough. But Google’s measured response, initially mocked, was the correct one. “Over time, this will just be how search works,” Google CEO Sundar Pichai retorted. Right. And in that world, Google wins.

Put simply, AI is a game changer for consumers and for productivity workers. And it will cement Microsoft’s leadership with businesses, which is nothing but good news. But nothing will ever make Bing—or Edge, for that matter—cool. Microsoft just isn’t that company.