The world's biggest software company has lost more than $5 billion over the past four years trying to build an online business, but hopes to reverse that trend once it completes a search advertising partnership with Yahoo Inc.
As soon as we close and implement the Yahoo deal, we have achieved a milestone: for advertisers, we are a credible No. 2, Yusuf Mehdi, senior vice president of Microsoft's online audience business, said in an interview on Tuesday.
Really now, the goal is about share gain. If we grow share, we will grow our way into profitability, and we have confidence we can do that, said Mehdi, who is charged with making Bing and the MSN portal a financial success.
Microsoft now has 10.7 percent of the U.S. search marketplace, according to ComScore, up from 8 percent before Bing's launch in June. But it still trails Google's 65.7 percent and Yahoo's 17.3 percent.
Assuming U.S. regulators soon approve a deal that makes Bing the underlying search engine for Yahoo, Microsoft will then effectively control almost 30 percent of the search market: a key number for advertisers.
At 30 points we are now a credible option, so that number matters, said Mehdi. The nice thing is we can say (to advertisers) you can be close to 30 percent share in one easy buy. That 30 percent carries a lot of weight in the marketplace.
Once advertisers start to catch on, Mehdi said, Microsoft will be on its way to making money online, a goal that has eluded the company for many years.
There's no question we intend to make a profit, said Mehdi, speaking at the gleaming new office tower in Bellevue, Washington, six miles from Microsoft's campus in Redmond, that serves as Bing's headquarters.
Clearly there's a huge return in the search marketplace that can more than make up the investments we've put in to this point.
PROFIT IN SIGHT
The exact size of the global search ad marketplace is hard to gauge, but Google's annual revenue of more than $23 billion indicate that it is large and growing.
The biggest part of moving into profit is just getting the scale, said Mehdi. We're built out to be a much larger player. We've spent the money and built out in such a way that we can be a player at scale. Every day that we grow a tenth of point of share, that moves us further up the curve.
Mehdi declined to comment on whether Microsoft would attempt to strike a deal with newly independent AOL Inc on powering its searches, which are now done by Google, but said he was always talking to potential partners.
He said the Bing application was a hit on Apple Inc's mobile devices, but refused to be drawn on recent reports that Apple is considering making it the default search application on its iPhone.
And he added that Microsoft has no plans to spin off or sell MSN, saying there was a great synergy between Bing and MSN for advertisers.
A long-planned relaunch of MSN -- cleaning up the look of the portal and offering the choice of custom home pages focusing on entertainment, news, sports, money or lifestyle -- had been postponed to March from earlier in the year.
To get that right, it takes some time, so we've delayed it a little bit to make sure we get the features right, he said.
Mehdi did not say what constitutes success in the search marketplace for Microsoft. The company has internal goals, but he said there was no magical number that Bing has to hit to survive.
Its very early. We have a very long way to go before we have what I think of as the success we want to have.
Mehdi acknowledged that Bing's gains have not so far reduced Google's hold on the market, which has actually increased 0.7 percentage points since Bing's launch.
Ultimately we want to be a major player at scale, so we're going to have to grow against Google at some point, said Mehdi.
But we're still outmanned and outgunned by Google, they still have way more engineers than we do.
(Editing by Edwin Chan and Steve Orlofsky)