Why does Microsoft have to add ChatGPT to Bing? Every 1% increase in search share generates $2 billion in revenue

News on February 9th, with Microsoft releasing the new Bing with ChatGPT support, and Google following up with the release of Bard, the AI ​​search war in the technology field has officially begun. For Microsoft, the move represents a huge revenue boost.

Microsoft launched the new Bing not only to attract Google search users, but also to steal its advertisers. In a digital ad market worth about $500 billion, search advertising is so lucrative that Microsoft could reap enough benefits even if it does little to chip away at Google's dominance. Increasing its search user share by even a few percentage points could increase its revenue by billions.

Philippe Ockenden, Microsoft's senior vice president of finance, said on a conference call with analysts: "For every 1 percentage point increase in search advertising market share, our advertising business will Expected to add $2 billion in revenue."

Bing is already the largest part of Microsoft's advertising business, which also includes Xbox, MSN, ad technology business Xandr, and a recent ad sales agreement with Netflix. Microsoft said on the call that its advertising unit generated $18 billion in revenue over the past 12 months and was profitable. Revenue nearly doubled from $10 billion in the previous fiscal year.

Ockenden also said that adding AI-powered features to Bing and the Edge browser will make the search experience better and drive more user usage, which in turn will attract more advertisers.

Microsoft also believes the company will be able to charge more for ads on the new Bing because AI technology will help create more personalized search results. According to 2021 data from marketing firm Wordstream, Google ads are 33% more expensive on average than Bing on a cost-per-click basis.

Ockenden said on the conference call: "While users may see fewer ads, they are more valuable to advertisers."

Advertising in chatbots Exactly what that will look like in the interface remains to be seen. Currently, search ads are served via keyword-driven ad auctions. For example, when users type in “home insurance,” “Paris hotel,” or “jeans,” companies pay to appear at the top of search ad results.

Microsoft Chief Technology Officer Kevin Scott said in an interview: "I really think we will figure out what advertising is." He suggested that the actual form of advertising may still be In the making.

It’s unclear how advertisers will target users who are encouraged to type longer, more conversational questions, said Andy Goodwin, UK head of paid search at digital advertising firm BrainLabs. . "The money-spinner for search advertisers is short-tail, transactional terms," ​​Goodwin said. New ad formats aside, the hype surrounding ChatGPT and the new Bing may push people to use more Microsoft search engines are often used, and advertisers often follow people's eyeball movements. "That's where the opportunity for market share change is," Goodwin said.

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