Microsoft’s earnings announcement and its unprecedented decision to cut around 5,000 employees has dominated the news today. Experts have already weighed in on the reasons and the ramifications (Mary-Jo Foley, for example, has information about which divisions might see job cuts). As the company tries to […]

Microsoft’s earnings announcement and its unprecedented decision to cut around 5,000 employees has dominated the news today. Experts have already weighed in on the reasons and the ramifications (Mary-Jo Foley, for example, has information about which divisions might see job cuts). As the company tries to get its act together, one question comes to mind: Should it give up on its search and online advertising efforts? The division brought in $866 million in revenues but lost $471 million.

As Allan B. Krans, senior analyst with Technology Business Research, points out, the Online Services Group has lost a cumulative total of $3.1 billion over the past three years; losses in calendar year 2008 amounting to a whopping $1.6 billion “with more than 50 percent operating losses being reported in each of the past three quarters,” he notes today. Krans is right to point out that the large-scale transitions to cloud computing and SaaS will impact Microsoft’s business, and that it means it’s time for the company to rethink “the concerted focus on challenging Google in the search and advertising business should at least draw a second look in light of the current business climate.”

I kinda side with Allan on this one. After all, why does Microsoft need to chase the proverbial rabbit (aka online advertising) down the hole, instead of refocusing its energies on what it knows best and expanding those markets? OK, now let’s debate about this.

Photo via Flickr courtesy of Nick, Progammerman.

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  1. They have always been such a stellar tool company, and pardon me if I am showing my ignorance here, where is their Javascript target compiler for their IDE?

  2. Perhaps I’m thinking about this selfishly, since I work for Live Search (by way of Powerset), but do you really want to see one of only major competitors in search disappear? Google constantly increases its marketshare, Yahoo is floundering, Ask is pretty much dead; but Microsoft is a company with deep pockets willing to make a huge long-term investment. Given the CapEx required to build a search engine, a startup is unlikely going to be able to challenge Google, so look why not look to Live or Yahoo to become challengers? I guess I just don’t understand why people want to see the world cleared for a Google hegemony.

  3. Microsoft management is horrible. They have no idea what they are doing. Microsoft was in the right place at the right time with Operating System & Office suite. They are guaranteed billions of dollars a quarter in profits from these two areas that management gets to piss away.

    Microsoft should buy Berkshire Hathaway and let Warren Buffet invest the free cash flow from operations. Now THAT would be a money making machine like no other.

  4. @Mark Johnson,

    Good point, But isn’t it reasonable to ask the question. I mean they have been doing this for so long that it is hard to ignore the question. I think they really need to focus their dollars – spend it all on technology and then worry about advertising.,. I guess they are worrying about revenues before building killer experience/solutions.

    What do you think?

  5. I think they are stuck without a strategy.
    The old way of copying somebodies ideas and integrate them into the Microsoft environment does not work on a web which is agnostic to one environment.
    Which brings us to the second point. Integration, how much integration will be provided via search and related technology in a SaaS environment?
    So even if they give up on consumer search, can they integrate as good as Google if we go SaaS with apps and data stored in different clouds. Somehow we have to relate all of that, even local context is basically advanced search.
    Problem is they are stuck in Zeno’s Paradox and doing ever more short term advances, just look at Vista and the goals they set out with and what they delivered, Windows 7 points in the same direction.
    They have to leap frog Google it will not be good enough to be just as good, and without search they will be toast in the future (integration between data and apps clouds).
    We’ll see what Google thinks about all this on the 27th.

  6. As a consumer, I have to agree with Mark Johnson on this one – Google needs a serious competitor for it to continue to have the motivation to invest in innovation. However, if I was a shareholder of Microsoft’s I would be a bit concerned about just how much money is getting potentially flushed down the toilet.

    That said, for a company of Microsoft’s size and cash position to willingly give up market share in an economic downturn seems like a strategic mistake. Instead, they need to use this opportunity to make some smart acquisitions to grow their market share and visibility as a serious search player. Possibilities that immediately come to mind include Facebook, Yahoo and Twitter.

    Microsoft management needs to play to win on this one.

  7. Should Microsoft reconsider its search efforts? Hmmm…. good question Om. Well my opinion is Microsoft should narrow its focus on making their Office Suite the best SaaS as possible. Integrate Google search into the Office Suite to allow searching within the documents and own that. Google Docs can’t compare to Office, not yet at least.

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  8. Om, why stop at Search?

    I’ve argued a year ago that Microsoft should, for its own sake, get out of pretty much all consumer markets where it’s forced to compete without its Windows/Office leverage:

    Consumer markets: Time for Microsoft to exit?


  9. Take their annual profit and subtract the $1 billion a year they are losing on search and advertising currently and its a small percentage to pay to get traction in a huge market that will continue to grow over the next 5+ years.

    They are not just sitting on the side lines in the SaaS space while they focus all of their investment and time chasing Google in search. Microsoft has plenty of manpower and $$$ where they can have their cash cows going while working on moving search forward. Their investments in moving apps online, Azure and their data centers actual compliment some search investments very well. For both you need lots of processing power, lots of storage, lots of bandwidth, spread geographically across the globe.

    Anyone have any stats on what Google is losing on their app related investments?

  10. Monopoly is never good for consumers.

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