) Bing search engine which competes with Google (
) and AOL (
) is seeing declining revenues from its search business. Revenue
per search (RPS) refers to the average advertising revenue
generated by Microsoft for every 1,000 searches conducted on Bing.
RPS is calculated based on two metrics: CTR (click-through rate)
and CPC (cost per click).
We estimate that Bing's RPS has declined from around $14.70 in
2008 to around $11.30 currently due to shift in high revenue
generating verticals like finance and technology to lower revenue
generating verticals like entertainment and consumer products.
However newer channels for search like smartphones and tablets
should give a boost to Bing's declining RPS.
While we expect Bing's RPS to decline gradually to $7, Trefis
members expect the RPS to remain over $11 by the end of our
forecast period. However higher RPS does not warranty a strong
upside to Microsoft's stock because Bing (combined with MSN and
aQuantive) constitutes only around 3% of MSFT stock by our
We currently have a
Trefis price estimate of $31.56 for Microsoft's
, about 16% above the current market price of around $27.
Higher Search Volumes in Lower RPS Verticals
The search volume on Bing is shifting away from high RPS search
verticals such as technology, finance, and retail toward verticals
such as entertainment, local, and consumer products, where
monetization is appreciably lower. Lower monetization in certain
verticals is attributable to lower pricing, or cost per click, of
Growth in Search on Mobile Devices
On small, mobile devices like smartphones and handhelds users
generally tend to search for a commercial purchase compared to
academic research-driven searches. Searches for commercial products
have higher click-through rates which means revenue per search on
mobile devices should also be higher.
Although mobile searches presently form only a fraction of the
overall search mix, they are expected to grow meaningfully in the
coming years. And Microsoft is making some smart moves in this
direction to attract more mobile phone users like sponsoring
Tapulous's Tap Tap Revenge app for the iPhone.
Tapulous studio is a part of Disney Mobile which creates
top-selling music and social apps for the iPhone platform.
Microsoft's sponsorship is a way to attract iPhone users to
download the Bing app to get free songs.
We think that initiatives like this could help drive greater
share of mobile searches for Bing, which could contribute to MSFT's
complete analysis for Microsoft's stock is here