Microsoft is many things, but it’s not a successful web company. For 15 years, Microsoft has tried time and again to become a major player online. Yet despite having the most popular browser, it’s never really monetized the web in a significant way.

Microsoft is many things, but one thing it’s not is a successful web company. And it’s time Redmond faced up to that.

For 15 years, Microsoft has tried time and again to become a major player on the web. It started by integrating an AOL-like dial-up content service in Windows 95. It shifted to a Yahoo-like web portal model three years later. In the search era, it designed search engine after search engine, culminating in an awkward bid to buy Yahoo that felt more like a divorce than a proposed merger. Despite having the most popular browser, however, Microsoft has never really monetized the web in a significant way.

And what does it have to show for all its effort? Years of losses. Since 2002, when Microsoft began breaking out MSN and online services as a separate category, the division has seen aggregate revenue of $20 billion but a total operating loss of nearly $7 billion. In the past 18 months, the losses in proportion to revenue have only grown larger. Microsoft now spends nearly two dollars on its online businesses for every dollar it makes in revenue. Major points for trying, but it’s time to call a failure a failure.

But what about Bing? Hasn’t Microsoft’s latest search engine been growing market share for seven straight months? Yes, it has: Bing’s search share grew to reach nearly 11 percent in January from 8 percent in May 2009, the month before Bing was launched. But look where it’s stolen its search business from — AOL and Bing’s own partner, Yahoo. Meanwhile, Google’s market share during that period inched up to 66 percent. Unless Bing can start eating away at Google’s share, its prospects for growth are limited.

And Google’s big challenge isn’t Bing, it’s the evolution of the web from a primarily search-oriented media to one driven by social dynamics and discovery. The time to start chipping away at Google’s dominance of the search market was five or 10 years ago. Now is the time to be hitting at Facebook and Twitter, but if Microsoft has a plan of attack on that front, it’s not evident what it is.

Does Microsoft not realize that all the spoils of the mobile web are going to the companies that control the front-end interface — that is, the big mobile OS players like Android and iPhone and not the fringe players like Windows Mobile? Maybe. It’s reportedly trying to make Bing the default search engine for the iPhone, but that move may be temporary, if it happens at all. Delay is costly. It released a Bing search app for the iPhone last December — more than six months after Bing debuted for PC browsers — and after a Google app had already been a staple on the iPhone for nearly two years. As of this week, the Google app remains the top reference app in the App Store. Bing trails in the seventh spot.

Which is too bad because in some small but interesting ways Bing is actually an innovative search engine. But Microsoft’s only choice appears to be to keep spending money and creating bigger losses. So there are lots of expensive deals, with Yahoo, with Twitter, with Verizon and maybe with Apple. Indeed, rather than letting its online offerings grow organically, Microsoft is forced to pay rent to companies that have more of a knack for monetizing the online world.

After 15 years, the evidence is pretty clear. The web is just not a part of Microsoft’s DNA. The quarterly results it released this week showed that Microsoft is still surprisingly good at what it does best: selling operating systems and software programs for PCs. There is a long-lived if diminishing market for that business. What Microsoft is not and may well never be is a web company. Mabye it’s time the company sold off its online division to a company that is just that – like Yahoo.

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  1. Microsoft has had an inept, controlling and anti-standards belligerence since the beginning.

    While I might not like any one company taking over everything I’m find with any and all aspects of Microsoft failure.

    1. @Grokodile – As an MS employee I’m sorry that we have disappointed you so much. It is true that we haven’t always done a great job of supporting web standards, but things have changed quite a bit. For example, IE8 is much more compliant than IE6, and MS is a major participant on many of the standards comittees.

      1. @Jamie thanks for the heads up on IE8. I’ve been meaning to try it out, and just downloaded it after reading your post and so far so good, certainly as snappy as Chrome and Firefox. I was @ Bing’s San Francico’s event a while back and if you know that South African guy on that team, tell him keep up the good work. I’m definately getting Windows 7 machines when I upgrade from XP. Thanks for being around the web.

      2. @Jamie: It’s not that MS hasn’t ‘always done a great job of supporting web standards’, it’s that they actively tried to undermine and replace them.

        ActiveX was to cement MS dominance on the web. Real support for standards didn’t emerge until FireFox started chipping away at IE share. Which also brought about the first update to IE in years. It’s become clear to even non-geek users that MS cares about its users only if it’s forced to.

        BTW, going back a little farther in history: MS at first (dis)missed the Internet completely. Bill Gates finally realized that the Intertubes might just be something worth investigating and changed Microsoft’s course 180 degrees.

      3. @Jamie. Thanks for your comment. I do think Microsoft has been changing its approach recently and putting a stronger focus on innovation in general. It’s resonating with Windows, but it’s not really making a difference on the Web, judging by the financials.

      4. Jamie, unfortunately, Microsoft doesn’t get to make its own comparison versus their own old, non-compliant product. There are now 4 high quality competitors which IE8 still compares poorly with.

  2. Good post. Microsoft’s an inward-looking company from the top leadership all the way down, but the essence of the web is outward-looking. This is why they keep missing on this one, imho.

    p.s. Suggest a second set of eyes to do a final read-through of every post in this blog group, to catch times when a spellchecker passes “my” and an author means “by”.

    1. Microsoft’s culture was forged before anyone knew of the web, let alone sensed its potential. Maybe that’s why they’re inward looking.

      Thanks for catching the typo. I’ll make sure it’s fixed.

      1. That typo has been fixed.

        best, Carolyn

  3. Aaron Von Gauss Saturday, January 30, 2010

    Microsoft has nobody to blame but Microsoft in this case, I haven’t had enough coffee yet to do a lengthy reply but here is one example. Microsoft started Bing Maps, they appear to put in a lot of effort and resources to make it successful, then they tie new features to Silverlight to try and increase Silverlight’s penetration. That’s not going to convince me to install Silverlight and the popup is probably going to just annoy me leading me to use another site if there is one available – such as maybe Google Maps?

  4. I think the web is to dynamic, or they are using the wrong math.

    Microsoft is highly data driven, so to pick up a new direction they need data to support it.

    This is pretty obvious in display ads versus search in the early days. Data pointed to portal as the success to the Web, Yahoo, Netscape … So Microsoft went into that direction. Before the data picked up to show Google’s success, that was already over.

    Now we have Apple, Google, Facebook, all going into different directions. Try to put that into a data model. As long as there are companies not listing or model their business on existing data and still be successful, because they follow their vision, good luck to Microsoft. It was highly unlikely that somebody could break into the carrier,mobile phone business. Data just didn’t support that, hence Steve’s B. comments on the early iPhone.

    I mean Win 7 is so data driven that my 9 year old son could figure that out (the math). In other words they function best in a stable environment, like Business SW.

  5. One theme I see with MS, is they falter when they can not dictate the space. The Web will always be their downfall so long as they keep acting like they control every bit of it, i.e Silverlight, that new JPG standard a few years ago, their own PDF standard, and most of the IEs. I thought they had something going on with the picked up Ozzie but I have yet to see anything there.

    Maybe MS’s web division should be spun off to think and act like a start up without the disabling crutches of their legacy OS and Office suite businesses. Let them innovate and succeed without having to buy their page views.

  6. Aaron makes a good point. Look at how Google has handled the Google Voice + iPhone rejection: they found another way to FORCE their tool to work on that platform. Microsoft still hasn’t even made a Bing application for Android!

  7. Rakesh waghela @Webiyo.com Saturday, January 30, 2010

    To be honest Microsoft has always remained a Follower in Internet and Web Based Consumer Centric Technologies !

    I can’t recall any of the web service which is being actively used globally around the WWW for longer period of time with considerable volumes to assume the dominance of Microsoft at Web front in general !

    Moreover their web systems are so complex and poorly designed that average users gets frustrated after initial experience of their web based services !

  8. whatever MS dont have they can afford to purchase.

  9. Funny I just came across this as I am preparing to get all my content off the MS Live service which I mistakenly signed up for when Microsoft was offering Guaranteed for for life Domain registration, and hosting. A promise they abrogated. They cancelled my wifes account, rather than suspending it, and wiped the e-mail accounts off the servers.. I can’t tell you the problems getting the domain moved to go-daddy.. The chances of my ever using another MS hosted service (including Azure) are nil.. I can only recommend to clients and others stay as far away from these dishonest people as possible, The poor business ethics seem to be baked into the culture..Another small example,, I recently received a PPTX powerpoint from a client who doesn’t know better,, and I opened it with the compatibility pack on Office 2003, I went to save it as 2003 to be told that it was “forbidden” by my registry settings,, whose machine is this anyway??? I converted it on my Wife’s office 2007.. There are plenty of other examples….. Now lets see,, where was I .. Ok export contacts,, followed by set gmail e-mail to suck up hotmail, then change domain registrar,, painful but less so then staying… I agree they don’t get the web.. The ill will they engender will never be overcome.

    1. How many oxymorons are there in the phrase “Microsoft business ethics”?

      Don’t give oxy to morons. Microsoft really wishes they were the Bibi Netanyahu of the Web, instead of the Sheik Ahmed Yassin.

  10. The Windows Royalty Trust – Why Microsoft Should Convert Already The Reformed Broker Saturday, January 30, 2010

    [...] to GigaOM for the chart of MSFT's online [...]

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