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Opinion: Can Microsoft make Bing cool with ChatGPT? There’s so much upside that it may not have to.

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Is Microsoft Corp.’s Bing search engine about to become cool?

That is what the software giant is counting on, after years of behind-the-scenes development and its burgeoning relationship with OpenAI, the creator of ChatGPT, the generative AI engine that it plans to incorporate into Bing, its oft-forgotten search engine. But Microsoft
may not have to completely succeed in making Bing a legitimate contender to Google’s dominant search engine to show big gains in online advertising, as its business right now is so small in comparison.

Microsoft showed off how it will integrate the chatbot technology behind ChatGPT into Bing on Tuesday, a move that clearly has Alphabet Inc.’s

Google running scared. Google opened up its own chatbot called Bard to select users Monday, ahead of Microsoft’s anticipated news, and said it would roll it out publicly in the coming weeks.

After attempting to wow tech reporters and analysts at Tuesday’s event, Microsoft focused more on numbers in a late investor call that spelled out some of the potential financial opportunities for the software giant, which showed an area where it plays a rare David to Google’s Goliath. Microsoft’s share of the internet ad business is indeed nearly as miniscule as its share of the search-engine business, which reportedly ranges from about 3% to 4% worldwide, coming in at No. 2 to Google’s dominance of about 93%.

Microsoft’s advertising business recorded nearly $18 billion in revenue in calendar 2022, Microsoft Chief Financial Officer Amy Hood disclosed for the first time in the call. That is up as much as 80% from Microsoft’s advertising revenue in calendar 2021, which Microsoft execs said a year ago surpassed $10 billion after accounting for traffic acquisition costs, or TAC, with the acquisition of Xander from AT&T Inc.
likely accounting for part of the big bump. Microsoft executives said in an earnings call last month that search and news advertising increased 10%, ex-TAC.

Advertising revenue of $18 billion sounds pretty big, but not in the world of Big Tech. Google’s advertising revenue in 2022 came in at $175.52 billion after subtracting TAC, nearly 10 times higher than Microsoft’s total, which includes ad revenue from LinkedIn. Meta Platforms Inc.
hit $113.6 billion in annual ad revenue in 2021, and even Inc.’s
ad business is double the size of Microsoft’s — $37.74 billion in 2022.

Microsoft is, in fact, making a big deal about its very small share of the market, a market that currently is in a big downdraft in an uncertain economy, as recent earnings reports from Alphabet and Facebook parent Meta confirmed. Because with its tiny share, any growth could seem relatively enormous.

“For every one point of share gain in the search-advertising market, it’s a $2 billion revenue opportunity for our advertising business,” Phil Ockenden, chief financial officer of the Windows, devices and search business at Microsoft, disclosed.

“We are a very small-share player today, even though we’ve gained share over the past seven quarters,” Hood said. “There is a lot of upside in this category for us.”

Some analysts were already impressed with Microsoft’s potential to grab more of what executives described as a $500 billion internet-advertising market, even though a $2 billion revenue gain would be less than 1% of Microsoft’s expected annual total this fiscal year.

“While we will not include share gains in our model until the products are widely available, we see this launch as a source of considerable upside given the size of the market and Microsoft’s current share,” DA Davidson analyst Gil Luria wrote in a note to clients. He added that he also believed the technology would provide a further boost to Microsoft’s Azure cloud-computing services business.

It is not clear how tech companies are going to make money in the much-hyped era of artificial intelligence, and OpenAI’s technology is not going to completely upend Google’s dominance in the search market. But Microsoft looks like it is poised to reap at least some financial benefits, if only because it has failed to grow its advertising revenue substantially as rivals were grabbing share in recent years.


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