Microsoft Targets News For Bing - But Is It A Viable Strategy?

Microsoft Corp. (MSFT: 29.22 -0.57 -1.91%) is trying to lure news providers to its Bing search engine. The company appears ready to pay providers for allowing it to index their sites on Bing. We are skeptical about the viability of such a venture, since paying the many popular news providers would be a huge drain on cash. We do not think this would be a sustainable business model.

But Microsoft seems to be pursuing the strategy in earnest. No doubt the company is trying to take advantage of the current slump in the newspaper industry, which is yet to devise a satisfactory system of delivering news online.

For newspaper companies, a search engine (such as Google or Bing) is a double-edged sword. While they direct users to news providers’ websites, they simultaneously take a cut off the publishers’ advertising revenues. So although news providers welcome the increased traffic, they are always sore about the loss of revenue.

The reason that Google (GOOG: 579.76 -5.98 -1.02%) has assumed so much importance is the success of its rating system that consistently churns out the most relevant news. It therefore attracts more users and the best in advertising revenues.

Rupert Murdoch of News Corp. (NWS: 13.69 -0.52 -3.66%) is probably trying to twist Google’s arm by threatening to take its business to Microsoft. No one knows whether this will ultimately materialize because the decision is likely to be expensive for News Corp. and may not have a significant impact on Google at all. The advantage for Bing is also debatable, since it would come at extra cost.

However, Microsoft has not stopped at News Corp. alone. Microsoft officials were in Europe this month, discussing prospects with the European Publishers Council. Although the details of the discussion were not disclosed, it is broadly expected that the company was trying to buy news for Bing.

A decision on the part of news providers to transfer business to Microsoft could also meet with regulatory hurdles.

According to October numbers released by Comscore (SCOR: 16.00 0.00 0.00%), Google had a 65.4% share of the search market compared to Bing’s share of 9.9%. Yahoo (YHOO) had an 18% share. Overall search volume increased 13.2% in October, with Bing growing the strongest of the three at 5.3% followed by Google’s 0.8%. Yahoo’s market share was down 4.3%. If the Microsoft-Yahoo deal goes through, Microsoft would have a 27.9% share, still significantly lower than Google.