Microsoft pledges more funds for online services
Published: 18 Jul 2008 10:42 BST
Microsoft plans to continue its investment in online services.
In a fourth-quarter earnings conference call on Thursday, Microsoft chief financial officer Chris Liddell said the company would pour hundreds of millions of additional dollars into its online advertising business.
"We do not make these investments lightly," said Liddell, who noted that the loss will be "a drag" on the rest of the company. However, he said it is worth the cost, given that the size of the online advertising market is measured in tens of billions of dollars.
Liddell noted that the market is projected to grow to $80bn (£40bn) by 2012, making it one of largest potential growth areas for Microsoft.
However, the market is also experiencing near-term weakness. Liddell said that the weakness reared its head in the last quarter and is expected to continue for the next six months at least.
Pressed by an analyst as to when Microsoft's online business might cease to be a drag on the company's bottom line, Liddell said he wasn't going to give a forecast for 2010 or 2011.
"I can't promise… [that] you are going to see a massive turnaround in the short term," he said.
Liddell said two-thirds of Microsoft's planned spending increases are related to driving increased search business.
Microsoft's plans include more toolbar programmes with computer makers, and deals with other software makers and internet service providers, as well as a faster rollout of its Live Search cashback programme. The company will also look at more vertical acquisitions, he said.
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Microsoft's decision to invest more in the business came during the quarter, Liddell said, as a deal with Yahoo seemed less likely — especially after Yahoo made its own deal with Google.
Liddell also outlined Microsoft's latest proposal to Yahoo, a search deal that he said has revenue guarantees of $19.5bn to $26.5bn over 10 years.
For the first five years, Microsoft would guarantee $2.3bn. After that, both companies would have an option to renew the deal, but at very different prices. If Microsoft unilaterally renews, it would have to pay Yahoo $3bn, while Microsoft's guarantee would drop to $1.6bn if Yahoo alone wants to renew.
"We continue to believe our proposal is a compelling one," Liddell said.
Yahoo also detailed the offer in a regulatory filing, but reached a very different conclusion on the value presented by Microsoft's offer.
Yahoo said in its filing that the $3bn guarantee is below what Yahoo expects to be making five to 10 years from now.
Credit: Microsoft ready to lose more money online from CNET News.com
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