Microsoft defended its second-quarter earnings yesterday by saying its investment in Internet services would help the company grow--but not for a few years. Its plans include integrating Internet
search into the Windows operating system, its Office software, XBox games, and cell phones powered by Microsoft. "Search will not be a destination, but it will become a utility woven into the fabric
of all kinds of computing experiences," says Kevin Johnson, co-president of Microsoft's platforms and services division. Search is a big piece of a broader effort by Microsoft to secure more online ad
dollars. Analysts predict that the $12 billion online ad market will more than double in size in the next three years. Microsoft's Internet push is nothing new, and it's no secret that the software
giant lags behind Google and Yahoo in ad revenue. To address that issue, it has invested millions in a new advertising system, called adCenter. Still, the company expects ad sales growth to be
gradual. Microsoft projects that its online services revenue would grow 7 percent to 11 percent in fiscal 2007--which is actually a big improvement from last year, when its online revenue fell 2
percent, losing $77 million. Google, by contrast, doubled its profit in the second quarter alone.
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