CNBC Guest Blog

Published: Monday, 6 Jul 2009 | 2:16 PM ET

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Microsoft's Bing search engine is finally giving it the right to brag that it has the technical testosterone to compete with Google. Internet data firm StatCounter reports that Bing took 8.23 percent of U.S. searches in June, up from 7.21 percent in April. In the meantime, Google's share has dropped – albeit very slightly – to 78.48 percent from 78.72 percent before Bing was introduced.

That's good for Google

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[GOOG  Loading...      ()   ], not so great for Microsoft

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Wait, did I get that backwards?

Here's the problem: Microsoft has spent enormous effort trying to prove it can compete with Google, while Google is putting substantial resources into online applications that compete with Microsoft.

The difference is that Google knows how to make money in Microsoft's marketplace. Microsoft cannot say the same about competing with Google.

Bing is a very nice search engine. A couple days ago, I gave it a test drive by searching on info about my favorite toy, my 1972 Volvo 1800E. The results were just as good as those from Google, sometimes even better. That's good for Google, which needs some decent competition just to keep from getting lazy. It could also stand to lose a little market share in order to stave off threats of anti-trust suits.

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However, my Bing search results came with only one ad, the usual one from eBay claiming it has whatever you're searching for on sale. And that was listed as a search result, rather than labeled as an ad.

That's a policy known as "paid inclusion," in which ads are disguised as search results. Google is the only search company that has never engaged in that deceptive practice, while other search engines (such as Ask.com) have dropped it for the simple reason that it doesn't work. Nobody clicks on them.

Source: Bing.com

Even worse, when I clicked on Bing's search results, almost every site it linked me to was full of "Ads by Google." Bing is doing a good job of generating ad revenue – for Google.

The same search on Google came with five ads in the "sponsored links" section, one of them for parts for my car (as well as the ubiquitous eBay ad).

Bing is about as valuable to Microsoft's bottom line as a car dealer selling a Volvo C70 T5 for the price of a 37-year-old 1800E.

Here are the statistics that really count: Microsoft's online advertising revenue dropped 16% in its most recent quarter, to $521 million. That resulted in a total loss of $575 million for its online services business. Google's revenues in the first quarter this year were also down 3% from the previous quarter, but at $5.5 billion (almost all from online advertising), they were still 10 times Microsoft's online ad revenues. Google made a $1.4 billion profit from its ads.

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The trend line is in Google's favor. Microsoft's model of selling applications in a box for $300 is steadily being displaced by the “cloud computing” model of Google and others, in which cheap or free applications are reside online without using up PC disk space.

Sure, Microsoft is bullish when it comes to search. But when it comes to making money online, one still has to wonder – where's the beef?

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Richard L. Brandt is a journalist with over 20 years’ experience covering science, technology and business. He is the author of the upcoming book, INSIDE LARRY AND SERGEY's BRAIN (Portfolio, September, 2009).

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