It Doesn't Matter If Microsoft's Bing Gets Blocked In China

Microsoft's (NASDAQ:MSFT) Bing was recently blocked in China for two days before its services were restored. The outage, which occurred amid the Cyberspace Administration's latest purge of "offensive" sites and apps, sparked concerns that Bing could be permanently booted from the People's Republic.

That may initially seem like a major loss for Microsoft -- after all, Bing is the only global search engine that remains available to mainland China's 800 million internet users, and the country's growing middle class makes it a fertile market for online ads. But if we take a closer look, we'll notice that Microsoft probably isn't losing much sleep over Bing's future in China.

It already lost the Chinese search market

Microsoft launched Bing as its replacement for Live Search nearly a decade ago. Unlike Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google, which left China in 2010 after clashing with regulators over hacked emails and censored content, Microsoft censored Bing's Chinese content in accordance with government regulations.

However, Google's exit merely allowed its biggest rival, Baidu (NASDAQ:BIDU), to conquer 70% of the Chinese search market according to StatCounter's latest numbers. Alibaba's Shemna ranks a distant second with a 16% share, followed by Sogou's 5% share and Haosou's 4% share.

Bing has a market share of just 2% in China, which includes 6% of the desktop searches, 3% of tablet searches, and less than 1% of smartphone searches. This indicates that Bing is being left behind the tech curve as more users conduct searches on phones.

Microsoft isn't even leveraging the strength of Windows 10 to expand Bing's reach in China. Instead, Microsoft integrated Baidu's search, video, cloud, and mapping apps into Windows 10 in 2015. Microsoft also replaced Bing with Baidu as Edge's default search engine, and made Baidu the browser's default home page.

That partnership indicated that Microsoft was willing to sacrifice Bing's future in China to lock in Windows 10 users with Baidu's more relevant and useful services. Microsoft struck a similar deal in Russia, which replaced Bing with Google's rival Yandex (NASDAQ:YNDX) in Windows 10's web browsers. The Yandex deal indicated that Microsoft would eagerly boot Bing from its own OS if it kept users away from Google.

Microsoft's deals with Baidu and Yandex tell us that the future of Windows 10, which runs on over 1.5 billion PCs worldwide, matters much more to the company than Bing, which controls just 1% of the world's search market.

So how much does Bing matter?

Microsoft's search advertising revenue rose 13% to $7.01 billion in fiscal 2018, but that accounted for just 6% of its top line. Excluding traffic acquisition costs, its search ad revenues rose 16%. Bing is a solid side business, but it's still significantly smaller than the company's core Windows, Office, and cloud service businesses.

However, investors also shouldn't dismiss Bing as an also-ran like Yahoo (which was powered by Bing for several years before a secondary search deal with Google in late 2015). Bing still controls 6% of the US search market, and its close integration with the virtual assistant Cortana -- which is expanding its ecosystem across various third-party devices -- could help it stay relevant in the nascent voice search market.

Not Microsoft's first rodeo in China

China has always been a tough market for Microsoft. Software piracy prevented it from generating significant Windows and Office revenues in China for years, and abrupt government raids over vague antitrust allegations and a temporary ban on Windows for government PCs in 2014 nearly derailed its expansion efforts across the country.

Compared to those crises, a two-day outage for Bing was barely a blip on the radar. I doubt the Chinese government will crack down on Bing since it holds a tiny market share and it's been extremely compliant to censorship demands. But if push comes to shove and Bing gets booted from the country, I doubt the setback would impact the long-term growth of Microsoft's core businesses.

This article originally appeared in the Motley Fool.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Baidu. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Baidu. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Yandex. The Motley Fool has a disclosure policy.