We continue to think that by trying to compete with Google in search, Steve Ballmer is shoveling billions of dollars of Microsoft shareholder capital down a bottomless rat hole....
How can we say such a thing when Bing's share of the US search market has increased from ~8% to ~12% in a year?
First, because Microsoft is clearly buying these search share gains through uneconomic distribution deals that negate the benefit of the growth.
How do we know that?
Because Microsoft's financial disclosures suggests that Microsoft is paying as much to gain every point of share as it is generating in revenue from each point of share. Put differently, it appears Microsoft has a 0% gross margin on its search market growth of the past year: For every $1 of new revenue it generates, it spends $1 in traffic acquisition costs. That's just not a sustainable business.
