Microsoft Could Inflate Google’s Mobile Search Toll
Google has dominated the search market for two decades. Photo: Andrew Matthews/Zuma Press By Dan Gallagher April 17, 2023 11:55 am ET Microsoft may or may not take much internet-search market share from Google, but the cost of holding on to that lucrative business is heading higher regardless. This has been apparent since early February when Microsoft lifted the wraps on a new Bing search engine powered by generative artificial-intelligence technology. Microsoft effectively declared its goal of finally becoming a major player in the business that generates more than $224 billion a year in advertising revenue for Google. Microsoft’s threat became even more apparent over this last weekend, when the New York Times reported that Samsung was consi
Google has dominated the search market for two decades.
Photo: Andrew Matthews/Zuma Press
Microsoft may or may not take much internet-search market share from Google, but the cost of holding on to that lucrative business is heading higher regardless.
This has been apparent since early February when Microsoft lifted the wraps on a new Bing search engine powered by generative artificial-intelligence technology. Microsoft effectively declared its goal of finally becoming a major player in the business that generates more than $224 billion a year in advertising revenue for Google.
Microsoft’s threat became even more apparent over this last weekend, when the New York Times reported that Samsung was considering replacing Google with Bing as the default search option on its mobile phones.
Samsung is the world’s largest smartphone manufacturer by market share, typically accounting for more than a fifth of phones sold per year globally, according to International Data Corp. So such a threat carries weight—especially if a more lucrative partner follows suit. Citing internal Google documents, the Times reported that Google’s default position on Samsung’s phones drives about $3 billion in annual revenue, while about $20 billion comes from a similar deal with Apple Inc. that is also up for renewal this year. Shares of Google-parent Alphabet fell more than 3% Monday morning.
Google has dominated the search market for two decades and the hype over the ChatGPT generative AI technology that powers the new Bing hasn’t made much of a dent yet. According to Statcounter, Bing’s share of the global search market went from 2.81% in February to 2.88% in March.
Paying mobile device makers to be the default option on their phones has been a controversial practice that has fueled some blowback from regulators toward Google, but even losing that position might not prove fatal. Mobile phone users in the European Union have had an option to pick search engines since early 2020 following a $5 billion antitrust ruling against Google. According to Statcounter, Google’s share of the mobile search engine market in Europe has remained around 97% since that time.
Still, Google can’t afford many other problems in its core business. Global online advertising is still in a slump; Google is expected to report its second consecutive decline in advertising revenue for the first quarter and to show a gain of less than 4% for the full year—a sharp deceleration for a business that has averaged 19% annual growth over the past five years.
Photo illustration: Preston Jessee for The Wall Street Journal
Traffic acquisition costs, or TAC, that include payments to companies such as Apple and Samsung totaled nearly $49 billion for Google last year. Keeping up with Microsoft was already likely to add even more costs given that generative AI technology is expensive to enable and operate due to the necessary chips, components and power requirements.
Google’s profitability has already been under pressure, with operating margins in its core Google Services segment slipping nearly 5 percentage points in 2022. Having to pay up to Samsung and Apple on board won’t help.
Write to Dan Gallagher at [email protected]
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