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Former Bing GM Danielle Tiedt

When Microsoft Bing marketing general manager Danielle Tiedt was hired by YouTube in February, Microsoft took the unusual step of saying that it had decided to “part ways” with her, independent of her decision to join a division of its archrival, Google.

Microsoft declined to say what actually happened behind the scenes. But GeekWire has since learned that one part of the story involves handbags, of all things.

A Microsoft investigation into Bing’s marketing group focused on areas including Tiedt’s connections to a high-end women’s handbag company run by her boyfriend, which was promoted by Bing in conjunction with its own marketing activities, according to people familiar with the investigation.

However, the handbags are just part of the story — a clue to the wide-ranging nature of the broader inquiry into the group and its use of Bing’s multi-million dollar marketing budget.

With the help of that marketing budget, Bing has been able to climb into the No. 2 position in the U.S. search market, with 15 percent market share, although Google still has more than 66 percent. But Bing’s gains have been costly, contributing to a loss of more than $2.5 billion in the company’s Online Services Division in the 2011 fiscal year.

On March 19, a few weeks after saying it had parted ways with Tiedt, Microsoft announced that two of her former team members, Bing marketers Sean Carver and Eric Hadley, had been terminated after an investigation. The company said they were let go “for violation of company policies related to mismanagement of company assets and vendor procurement.”

The two were known for creative marketing projects including lavish parties to promote Bing at high-profile venues and events around the country, featuring celebrities such as Jay-Z and LeBron James.

Ad Age reported last week that the investigation turned up “a list of violations” of internal Microsoft policies by Hadley and Carver — including some related to purchase orders for a three story “Bing Bar” at the Sundance Film Festival that hosted celebrities such as Drake, Jason Mraz, Paul Simon and Neil Young, with catered food and an open bar.

The events were a hit with the celebrities.

“It’s very easy to make your party decision here,” said television host Ryan Seacrest in a video interview at Sundance last year. “Wherever B-I-N-G is, that’s where you G-O. Wherever it says Bing, you go through that door. It’s always fun.”

At least one part of the inquiry into the handbags was also related to a Bing marketing event. At Fashion Week in New York last year, Microsoft staged a “Bing Lounge” where some of the featured products were from a company called Tradesrogue.

Tradesrogue, run by designer Nathaniel Smith, describes itself as an “artisan leather house.” It sells high-end women’s handbags, such as the one pictured above.

Eric Hadley and Sean Carver in a 2010 video interview at the Sundance Film Festival

Those familiar with the Microsoft investigation say Tiedt informed people inside the company about her personal connection to Smith, appearing to comply with conflict-of-interest policies.

However, Tiedt herself is also an owner of Tradesrogue, according to Washington state corporations records that list her as a member of Tradesrogue LLC, with Smith as manager. The investigation focused in part on whether Tiedt properly disclosed her own role in the handbag company.

Tiedt was hired by YouTube as vice president of marketing. A spokesman for the company declined to comment, and Tiedt and Smith haven’t responded to our messages seeking to talk with them.

The departures of Hadley, Carver and Tiedt have been enough of a soap opera to attract coverage from publications such as the New York Post. From our conversations with people at Microsoft, it’s clear that the company would rather see this story go away.

At the same time, Microsoft raised eyebrows itself by naming Tiedt’s former brother-in-law, Microsoft GM Mike Nichols, to assume additional responsibilities with her former team on an interim basis following the departure of Hadley and Carver.

Microsoft has made it clear that it encourages creative marketing as long as its internal policies are followed. And it hasn’t shied away from splashy events to promote its underdog products, such as that six-story Windows Phone that the company constructed in New York City last year.

Along the same lines, the parties and Bing-sponsored lounges at high-profile events were examples of the creative tactics tried by the Bing marketing unit over the past couple years, beyond traditional advertising and sports sponsorships. The idea was to promote the Bing brand to younger generations and others who wouldn’t normally think of using anything but Google.

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