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 do...