Microsoft ready to spend, but on what?
Published: 03 May 2006 16:15 BST
On top of that, Microsoft is exploring whether it makes sense to use advertising to subsidise desktop software. Currently in testing is a product called Windows Live Mail Desktop, a free desktop e-mail reader. It's meant to augment the Windows Live Web-based email service, a revamp of Hotmail, that the company has spent the last two years developing.
On the table is a much broader ad plan under which the company would offer any number of software products, including well-known mainstays like Microsoft Works, for free to those willing to view ads along with their documents. It has yet to announce any plans for such an undertaking.
Follow the money
The question remains, just where are all those investment dollars going?
Some will be spent on hiring, Microsoft has said. It also expects to bulk up the physical infrastructure -- such as server farms and networking gear -- needed for its services push. In an interview with Fortune magazine, chief technical officer Ray Ozzie said the hardware needed will cost "staggering" amounts of money.
Not all the money is going into Windows Live and MSN. Microsoft plans a huge marketing campaign for Windows Vista and Office 2007. Both products are slated for a January launch, though some analysts expect further delays. The company is also boosting its Xbox shipments to try to move as many of the game consoles as possible before Sony's PlayStation 3 hits the market. Each Xbox is shipping at a loss.
Merrill Lynch did its own estimate of what an extra $2.4bn in expenses could buy. Analyst Kash Rangan said it could get 200,000 servers at a cost of around $500m, hire 10,000 developers at a cost of $750m to $1bn, pay for $700m in networking gear and still leave around $300m to subsidise millions of Xbox 360s at a loss of $25 per console.
Regardless of where the money is going, Credit Suisse's Maynard said "Microsoft is spending enough money to build a Google-sized business inside their company".
And that money may not be enough to catch up, he said in his research note.
"We are not ready to say that it is too late for Microsoft to improve its prospects, but we find it very hard to believe that the growth of pure-plays like Google, Salesforce.com and Yahoo will be impaired by desperate and reactive spending measures," Maynard said.
Ballmer, meanwhile, told Microsoft workers that the push is just the kind of big bet that has paid off for the company in the past: "Now is not the time to scale back the scope of our ambition or the scale of our investment."
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