Microsoft spent Tuesday basking in the buzz of its newly unveiled, A.I.-powered Bing search engine. Now it just has to figure out how to monetize it.
Microsoft believes advertising will continue to be the primary money-maker for Bing, even as it hopes to transform the search business with its new OpenAI-infused search tool. In a conversation with Fortune on Wednesday, Microsoft executive Yusuf Mehdi acknowledged that the company is still not sure what the ideal ads will look like or how the ad business model will evolve in a world where search looks more like a chatbot than a traditional search engine.
And he said that Microsoft was just beginning to talk with marketers about how to adapt search ads for the world it envisions.
Because the project to build the new A.I.-powered version of Bing was a secret, Mehdi said that conversations with advertisers had to wait until after Tuesday’s public unveiling. As soon as the announcement happened, he said, “we set up meetings with all the top advertising agencies, and we’re walking them through the new model.”
For now, Microsoft is simply porting its existing search ads into the new chat interface. But Mehdi said that will almost surely change. Among the questions Microsoft and marketers are brainstorming: Should ads be embedded and labeled within the chat function? Should they show up smaller or less frequently?
“I want to build a little bit of an advertising coalition to come and help us with this new search, the new future of search, [and] how the ad model [should] work,” Mehdi, corporate vice president and consumer Chief Marketing Officer at Microsoft said as he sipped from a cup of hot water—yes, just hot water—from his office in one of Microsoft’s newer office buildings on Wednesday. “We’re getting into that now," he said.
“We're going to figure all that out, and our ad model will change,” Mehdi says. “I think our sense of things is there will be fewer ads in that chat experience but they’ll be higher quality and higher ROI.”
The opportunity is huge. Microsoft finance chief Amy Hood told investors on Tuesday that every additional percentage of market share that Microsoft’s search engine gets translates to $2 billion dollars of revenue. And with Microsoft’s U.S. market share for desktop search currently estimated to be less than 10%, far behind Google’s dominant 84% share, there’s plenty of room to grow.
Advertising is also something Microsoft will need to figure out rather quickly given the costs of its new search gambit. Microsoft has carefully avoided getting into specifics regarding how much it costs to run the enormous A.I. model it is harnessing to power its search chatbot. Experts and analysts have speculated these kinds of models cost millions—maybe even billions—to run at a large scale, as the computing power required is much more substantial than what’s required for traditional search. Not to mention—Microsoft says it is using a more-advanced version of GPT than what is publicly available now, so this version is likely even more costly.
The matter of scale shouldn’t be too much of an issue for now. Microsoft is only releasing this first version of Bing to a limited number of people. But Mehdi says that they are hoping to scale it to “be in the millions” in two weeks time, meaning it’s only a matter of time before bills start to go up.
“Advertising is the big opportunity” for search, Mehdi says, noting that Microsoft would “start with that,” though he said the company may consider other ways to make money with A.I. search in the future. “I'm not foreclosing anything. We may consider other models in the future.”
One thing that Microsoft won’t be spending money on is its own advertising to promote the new A.I. powered Bing. Medhi said the company will rely on word of mouth and user-generated buzz rather than a traditional marketing campaign.
“This is one of those products that is naturally organic and viral,” said Mehdi.
