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Microsoft: 'We're Doing This For You'

  • Fortune, Wednesday, November 26, 2008 11:30 AM
Microsoft's Online Services Business includes the portals MSN and, Live Search, and the aQuantive advertising agency (which the software giant acquired last year for $6 billion). Revenues grew just 15% in the third quarter to $770 million, but overall, the unit lost $480 billion, a loss that was 80% greater than the third quarter in 2007. So why has Microsoft been so ineffective?

The short answer is that like Yahoo, Microsoft has been myopically focused on catching Google, the undisputed king of online advertising. The company has thrown a ton of money at data centers, personnel, and marketing, but Microsoft's online audience remains small, and costs outweigh sales. Unlike Google, most of its Web revenue comes from display ads, as opposed to search. As Lashinsky says, "Microsoft is understandably touchy on the subject of its online travails." In fact, the company declined to offer any of the five execs that have direct responsibility for its online businesses for interviews for this article. At an industry event in San Francisco, one agitated exec told Lashinsky that Microsoft is all that stands between Google and the destruction of ad-supported media. "We're doing this for you," he snapped.

Salman Ullah, a venture capitalist who has worked with both Google and Microsoft, says the software giant is simply "trying to do everything every major online company does ...yet they only monetize one way: brand advertising. And they share that revenue overwhelmingly with partners."

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