Ballmer: Microsoft May Spend Up To 10 Percent Of Operating Income On Search

Steve Ballmer has said that Microsoft (NSDQ: MSFT) will have to “spend to compete” in search — and Thursday he put some round numbers on how much the company might eventually invest. Speaking in Chicago, Ballmer said he was willing to invest 5 to 10 percent of the company’s overall operating income on the search business for up to five years, according to Reuters. Alley Insider runs the math and says that would amount to up to $11 billion — a figure which assumes the unlikely scenario that Microsoft’s operating income will stay flat for the next five years. The amount is more than what Ballmer has indicated in the past. For instance, last summer, he told financial analysts that “we’re going to certainly have to think about the bogey as at least $1.2 billion or $1.5 billion a year to stay competitive, let alone reinvent on the R&D side.”

Ballmer likened the situation on Thursday to the company’s Xbox console, saying it was a business that Microsoft had “invested in … for years and now … generates nice economic returns.” That statement is debatable, however, considering that while the Xbox is a big consumer hit, it is not bringing in substantial income for the company. Microsoft’s entertainment and devices division, which encompasses both the Xbox as well as some other businesses, posted operating income for the first time ever last fiscal year. However, it amounted to a relatively paltry $426 million (That’s less than two percent of Microsoft’s total operating income). The Xbox’s success also was not enough to keep the division from swinging to a loss once again last quarter.

Ballmer — however — has indicated that he will be willing to pull in search spending if it does not actually generate results. In late February, he put an odd analogy on the situation during the company’s mid-year strategic update: “I don’t want to wind up being known as the Jerry Yang of this market in a different way, the guy who invested forever and got no