Bing Revenue Grows for Microsoft, but End of Yahoo Alliance Looms

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Microsoft Bing's homepage.
Microsoft Bing's homepage.

Microsoft revenue in the quarter ending Sept. 30 totaled $20.5 billion, up from $20.3 billion from the quarter a year prior, and net income was $4.7 billion, up from $4.6 billion from the same time last year, the company said Thursday.

Search revenue grew 9%, excluding traffic acquisition costs, according to the company, which cited both higher search volume and increased revenue per search.

The question is what happens to that business when Yahoo stops using Bing to power 51% of its desktop searches under a deal expiring Jan. 31.

"We expect that total search revenue growth will slow considerably as we pass the one-year anniversary of our Yahoo deal and the associated change in revenue recognition," said Chris Suh, general manager of investor relations at Microsoft, during a conference call with analysts to discuss the quarterly results.

Even as consumers migrate to mobile devices, desktop search remains a vital part of the online ad economy. According to the Interactive Advertising Bureau, domestic desktop search advertising revenue was $20.3 billion in 2015.

Although Bing was a latecomer to the game, it is the No. 2 search engine in the United States with 22% market share of searches, following Google at 63.6% and leading Yahoo at 11.8%, according to a September report from ComScore.

Microsoft markets Bing less as an exclusive alternative to Google than a search engine that brings a different audience to the table for marketers. Consumers who search for products with Bing can earn rewards such as Amazon or Starbucks giftcards, for example.

Microsoft has also positioned Bing well for future growth. Through Windows 10, search queries performed on the operating system or Microsoft's Edge browser are powered by Bing.

Bing has its tentacles in other places, too, like Microsoft's Xbox gaming console, numerous partner APIs and its Bing app.

"More than a thousand applications have been developed using the Cortana API and Windows 10 Cortana search box now has 141 million monthly active users, with almost 13 billion questions asked to date," Mr. Suh said.

Meanwhile, revenue for Microsoft's mobile devices fell 72% as the company shifted its focus away from making smartphones. It wants to work on fewer devices overall.

And despite New England Patriots head coach Bill Belichick's disapproval of the official tablet of the NFL, Microsoft Surface continues to perform for the company: Surface revenue increased 38% year-over-year, from $672 million to $926 million.

"Surface continues to drive category growth and more commercial customers are choosing to deploy Surface, with deals of 500 devices or more increasing 70% year-over-year," Satya Nadella, CEO at Microsoft, said during the call.

The biggest driver of revenue was Microsoft's Intelligent Cloud, which includes its Azure cloud computing services and data centers, among other things. Revenue for Intelligent Cloud came in at $6.4 billion, up 8% year-over-year.

Azure specifically was up 121%, Microsoft said.

"These differentiated features are leading our cloud infrastructure growth," Mr. Nadella said. "Azure revenue once again grew triple-digits, 121% in constant currency, with Azure compute usage more than doubling year over year."

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