According to research firm Experian Hitwise, Google’s search market share dipped below the key 90% level in the United Kingdom during October, posting a monthly decline of 1.4% and year-over-year decline of 1.69%.  While this is only one month’s worth data, we think that the drop in Google’s market share in a developed country like the United Kingdom is a worrying sign. It could signal similar trends in other countries, especially since the release of Windows 8 puts Bing as the default search engines on PCs. As usual, Google’s loss is Microsoft’s (NASDAQ:MSFT) gain as the firm posted a monthly increase of almost 1% market share during October.
Google Cedes Share in Developed Market
During the third quarter of 2012, around 10% of Google’s total revenues came from the United Kingdom. Google doesn’t release the percentage breakdown of income generated in the UK from search ads, but it is likely similar to Google’s overall spit-up, which was approximately 95% during the third quarter. Due to projected growth in other parts of Google’s business, we currently estimate that search ads make up approximately 65% of Google’s total value. This is broken up in two segments: 35% of the value comes from mobile search ads and 30% from PC search ads.
We’re a bit troubled by the decline in Google’s search market share in a developed country like the UK where Internet penetration stands at 83%. Google has an established brand in the country and the ceding of market share indicates that some users have started replacing Google with Bing in conducting online searches. If this trend continues, we could see Google lose market share in the United Kingdom, which could signal a trend for other countries.
Windows Phone 8 Can Drive Bing Growth
Bing is a small source of Microsoft’s total revenues as online advertising revenues were only $655 million during the third quarter versus $16 billion the company made as a whole. Despite this small revenue share currently, we think that Bing is a key platform for Microsoft since it is central to its overall content experience. The company, with its Windows Phone 8 operating system, has a good opportunity to gain search market share in the mobile market, especially among new smartphone users who buy a Windows-based phone.
Over the long term, we could see search ads from Windows 8 phones become a lucrative segment for Microsoft, especially given the fact that we estimate Google’s mobile ad division to be worth about 35% of Google’s total value. If Bing gets some of the market share in mobile ads, it will likely provide upside to Microsoft’s value.
As this is only a month’s worth data, we do not wish to put too much weight on this figure. However, it will get us to closely watch the search market share releases in other developed countries. Google’s strategy across its platforms is more or less centered around search and, if the company starts losing market share, it could be in trouble going forward.Notes: